Highmark, Inc., an insurance affiliate of the Pittsburgh-based non-profit Highmark Health, filed suit on March 17, 2016 in the United States Court of Claims to compel payments under the Affordable Care Act’s (ACA) risk corridor program. A copy of the complaint is linked here. Significantly, Highmark is a major player in the health insurance marketplace, including in ACA markets, and is not a co-op, signifying that the issues raised are relevant for all health carriers, not just co-ops. In its complaint, captioned First Priority Life Insurance Company, Inc., Highmark, Inc. f/k/a Highmark Health Services, et al. v. The United States of America, the plaintiffs seek damages which they allege are owed by the United States government (Government) for violations of the mandatory risk corridor payment obligations prescribed in Section 1342 of the ACA, and its implementing federal regulations, as well as defendant’s breach of its risk corridor payment obligations under express or implied-in-fact contracts, breach of the covenant of good faith and fair dealing which plaintiffs allege are implied in defendant’s contracts with the plaintiff insurers, and defendant’s taking of the plaintiff insurers’ property without just compensation in violation of the Fifth Amendment of the United States Constitution.
The ACA extended guaranteed availability of health care to all Americans and prohibited health insurers from using factors such as health status, medical history, gender, and industry of employment to set premium rates or deny coverage. Since the legislation introduced a significant number of previously uninsured or underinsured citizens into the health care marketplace, it created uncertainty for health insurers that had no previous experience or reliable data with respect to these individuals, in order to assess the risks and set premium for the new population of prospective insureds under the ACA.
Recognizing uncertainty for health insurers in the rating process, the Government included in the ACA three premium stabilization programs to facilitate implementation of the ACA and to protect the health insurers against risk selection and market uncertainty. One of these three programs was the temporary risk corridor program, which mandated that health insurers be paid annual risk corridor payments based upon a statutorily prescribed formula to provide health insurers with stability and also to help stabilize premiums for consumers.
The risk corridor program outlined in the ACA contemplated that qualified health insurers, such as the plaintiff insurers and the Government here, would share in the risk associated with the new market’s uncertainty for each of the temporary program’s three years: 2014, 2015 and 2016. If the amount that a qualified health plan (QHP) collects in premium in any of these years exceeds its medical expenses by a certain target amount, the QHP will make a payment to the Government. If, on the other hand, annual premiums fall short of the target, Congress required the Government to make risk corridor payments to the QHP under a formula prescribed in Section 1342 of the ACA.
While the Government admitted its statutory and regulatory obligations to pay the plaintiff insurers the full amount of risk corridor payments owed to them for calendar years 2014, it failed to pay the full amount. Instead, the Government arbitrarily paid the plaintiff insurers only a pro rata share (less than 12.6%) of the total amount due, contending that the full payment to the plaintiff insurers is limited by available appropriations, even though no such limits are imposed by the ACA or its implementing regulations, or the plaintiff insurers’ contracts with the Government.
Plaintiff insurers allege that the Government’s failure to honor its statutory, regulatory and contractual obligations have resulted in damages of at least $222,939,981.70, the aggregate amount of risk corridor payments owed to the plaintiff insurers for calendar year 2014. Should the court find that the Government failed to make full and timely calendar year 2014 risk corridor payments to the plaintiff insurers in violation of the defendant’s statutory, regulatory and/or contractual obligations and/or the plaintiffs’ constitutional rights under the Fifth Amendment, then in their complaint, plaintiffs also seek relief from the Federal Court of Claims regarding the Government’s obligations to make full and timely risk corridor payments for calendar years 2015 and 2016.
Highmark Health alone had a loss of approximately $85 million in 2015, on revenue of about $17.7 billion, with the negative result due largely to losses on its ACA plan business. Such losses may have also contributed to the recent decision of United Healthcare to exit all ACA-related markets. [See Wall Street Journal article]. In light of these losses, Highmark takes the position that it had a fiduciary responsibility to its policyholders to file this suit. Similarly, publicly-traded health insurers with unpaid risk corridor payments may be pressured by shareholders to file their own suits.
Though the Highmark suit is not the first filed in the U.S. Court of Claims to address the failure of the Government to make the mandated risk corridor payments [see 5.4.16 alert], it is the first case filed by a non-co-op insurer, drawing attention to the impact of the Government’s failure to fund the risk corridor payments across the entire insured marketplace.