Health Republic Insurance Company of Oregon, on behalf of itself and others similarly situated, instituted a class action yesterday in the United States Court of Federal Claims against the United States of America for violations of Section 1342 of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18001 (2010) (ACA) (Section 1342) and 45 C.F.R. § 153.510(b) (Section 153.510) as well as for violations of other applicable laws, seeking $5 billion in damages and other relief. The suit centers around the failure of the Center for Medicare and Medicaid Services (CMS) and its governing agency, the U.S. Department of Health and Human Services (HHS) (together, the Government) to make risk corridor payments to Health Republic and other CO-OPs doing business on the federally facilitated marketplace or state exchanges (collectively, the Exchanges). Health Republic alleges that the Government’s failure to make 2014 risk corridor payments and the estimates for payment of the 2015 risk corridor amounts owed caused it to fall below statutory reserve requirements and compelled it to shut down, exiting the Exchanges for 2016.
The ACA requires health plans in both the individual and small group markets to cover a long list of essential health benefits in their policy forms. The ACA mandates that many benefits previously subjected to co-pays or other cost-sharing mechanisms be provided to insureds at no cost. Moreover, other marketplace changes render it difficult to predict utilization of services. In recognition of these uncertainties, the ACA includes three risk-sharing programs intended to mitigate the risk to insurers inherent in the new Exchange marketplace. These risk-sharing programs, or the so-called “three Rs,” include a permanent risk-adjustment program (risk adjustment); a transitional reinsurance program designed to run from 2014 through 2016 (reinsurance); and a temporary risk corridor program that also was supposed to run from 2014 to 2015 (risk corridor).
Health Republic’s suit addresses the Government’s failure to make risk corridor monies available to CO-OPs under the risk-sharing program. The complaint alleges that Section 1342 and Section 153.510(b) require that the Government make the risk corridor payments if a qualified health plan’s (QHP) losses in any year from 2014 through 2016 exceed certain defined amounts. Conversely, if CMS and HHS profits in any year from 2014 through 2016 exceed certain defined amounts, then QHPs must pay the Government a defined portion of those profits.
Health Republic alleges that these express and binding obligations effectively were eliminated by two subsequent legislations, the Consolidated and Further Continuing Appropriations Act of 2015 (Pub. L. 113-235) (2015 Spending Bill) and, a year later, the Consolidated Appropriations Act of 2016 (Pub. L. 114-113) (2016 Spending Bill). Both acts included a parallel set of riders prohibiting the Government from paying risk corridor amounts from the funds established for and/or appropriated to CMS and HHS.
The practical effect of the 2015 Spending Bill is to prevent CMS and HHS from paying QHPs such as Health Republic their full risk corridor receivable during 2014. Because 2014 was a difficult year on the new Exchanges, the non-payment of the risk corridor monies created an extraordinary financial burden on QHPs. The complaint alleges further that as a result of the 2015 Spending Bill, over $2.5 billion in mandatory risk corridor payments for 2014 were not paid. Instead, payments to insurers under the risk corridor program amounted to 12.6 percent of the amount expected for 2014. The 2016 Spending Bill will assure that additional risk corridor monies are not paid in the event of losses by QHPs writing on Exchanges, which Health Republic alleges supports an additional $2.5 billion damage claim.
Although the risk corridor is the smallest of the three R’s, Health Republic contends that it is the most important as it was contemplated by the ACA as a necessary component to allow QHPs to function and survive during its early years of operation, at the onset of the Exchange marketplace while it stabilized. Health Republic seeks to compel payment by the Government of the risk corridor monies.
Whether the class is certified and relief is granted, the complaint signals yet another serious lack of confidence in the Government’s national health reform efforts and threatens to further undermine the ACA, which already has been challenged before the United States Supreme Court.