The Patient Protection and Affordable Care Act (ACA) established health insurance exchanges where insurers can offer qualified health plans (QHPs) to individuals and certain employers. Because the exchanges made coverage available to people who previously were uninsured or underinsured, some QHP issuers may have lacked enough information to properly evaluate risk and anticipate costs.

To encourage QHP issuers to set modest premiums during the early years of the exchanges, the ACA established a three-year risk corridors program (Program) that would reimburse QHP issuers certain excess benefit costs. However, by the end of the Program, the federal government had yet to reimburse QHP issuers more than $12 billion. The government has since refused to appropriate sufficient funds to pay the outstanding amounts. The article below provides a brief overview of the Program, two important cases on appeal concerning the federal government’s obligation to make the payments, and the recently passed omnibus spending bill.

The Risk Corridors Program

The Program started in 2014 and required QHP issuers to spend a certain portion of premium funds (target amount) on healthcare and quality improvement (allowable costs) each benefit year. See 42 U.S.C. § 18062. QHP issuers that spent less than 97% of the target amount had to pay a portion of their gains into the Program (Collected Amounts). 42 U.S.C. § 18062(b)(2); 45 C.F.R. § 153.510(c). QHP issuers that spent more than 103% of the target amount would be reimbursed a portion of their excess losses (Risk Corridors Payment). 42 U.S.C. § 18062(b)(1); 45 C.F.R. § 153.510(b).

Through annual appropriations riders, Congress limited funding for the Risk Corridors Payments to the Collected Amounts. Risk Corridors Payments exceeding the Collected Amounts were transferred to the following year. However, by the end of the Program in 2016, more than $12 billion remained outstanding due to QHP issuers experiencing more significant losses than significant gains, resulting in inadequate Collected Amounts. The government has since refused to appropriate additional funding to cover the outstanding Risk Corridors Payments, prompting many QHP issuers to file suit.

Legal Actions Concerning the Outstanding Risk Corridors Payments

Two important cases addressing the outstanding Risk Corridors Payments are Land of Lincoln Mutual Health Insurance Company v. United States and Moda Health Plan, Inc. v. United States.

In Land of Lincoln Mutual Health Insurance Company, Judge Charles Lettow of the Court of Federal Claims held that “HHS’s decision not to make full payments annually cannot be considered contrary to law.” Land of Lincoln Mut. Health Ins. Co. v. United States, 129 Fed. Cl. 81, 108 (2016). The court found that the ACA was “ambiguous in terms of the ‘payments in’ and ‘payments out’ arrangement for risk-corridors payments because it does not contain an express authorization for appropriations to make up any shortfall in the ‘payments in’ to cover all of the ‘payments out’ that may be due. And, it does not explicitly require ‘payments out’ to be made on an annual basis, whether in full or not.” Id. at 106. Because of these ambiguities, the court deferred to “HHS’s interpretation [of the ACA, which] was reflected in its final rule on May 27, 2014, [where] it stated that it intended to administer risk corridors in a budget neutral way over the three-year life of the program, rather than annually.” Id. (internal quotation marks omitted). The court also found there was no contract between Land of Lincoln Mutual Health and the government concerning the Program. Id. at 108-113.

In contrast, in Moda Health Plan, Inc., Judge Thomas Wheeler of the Court of Federal Claims held that “the Government . . . unlawfully withheld risk corridors payments from Moda, and is therefore liable. The Court [found] that the ACA requires annual payments to insurers and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments under the ACA. In the alternative, the Court [found] that the ACA constituted an offer for a unilateral contract, and Moda accepted this offer by offering qualified health plans on the Health Benefit Exchanges.” Moda Health Plan, Inc. v. United States, 130 Fed. Cl. 436, 441 (2017). The “Government made a promise in the risk corridors program that it has yet to fulfill. [T]he Court [directed] the Government to fulfill that promise. After all, to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.” Id. at 466 (quoting Brandt v. Hickel, 427 F.2d 53, 57 (1970)).

Both cases are on appeal in the Federal Circuit, which heard oral argument in January 2018.

The Health & Human Services 2019 Budget

In an interesting turn of events, the Health & Human Services (HHS) 2019 proposed budget released on February 12, 2018, included $11.5 billion to fund the outstanding Risk Corridors Payments. Land of Lincoln Mutual Health Insurance Company and Moda Health Plan, Inc. alerted the Federal Circuit to the budget, and argued that it showed the federal government’s intent to fund the Program. However, on February 19, 2018, HHS posted a revised budget once again limiting outlays for the Program to the Collected Amounts. On March 23, 2018, President Trump signed into law a $1.3 trillion omnibus spending bill that did not appropriate additional funds to cover the outstanding Risk Corridors Payments.

Conclusion

In light of the federal government’s steadfast refusal to fully fund the Program, the Federal Circuit’s decisions in Land of Lincoln Mutual Health Insurance Company and Moda Health Plan, Inc. will have significant financial consequences in these cases and the numerous others just like them. The Federal Circuit’s decisions are expected any day now.