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Insurers On the Hook for Risk Corridor Losses

Analysis  |  By John Commins  
   June 14, 2018

In a 2-to-1 ruling, a federal appeals court said Congress 'through clear intent' suspended the government's obligation to pay health insurers for losses accrued during the ACA rollout.

A federal appeals court on Thursday ruled that the federal government is not obligated to pay about $12.3 billion in "risk corridor" payments that were provisioned into the Affordable Care Act to insulate insurance companies from excessive losses.

Pending any sort of reversal on appeal, the ruling by the U.S. Court of Appeals for the Federal District means that health insurance companies will not get the money they were promised under an agreement to provide ACA-mandated coverage benefits coupled with a provision for limiting financial losses.

"Although section 1342 obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments, we hold that Congress suspended the government's obligation in each year of the program through clear intent manifested in appropriations riders," Chief Judge Sharon Prost wrote for the majority.

"We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments," Prost wrote.

The 2-to-1 ruling overturns a lower court ruling in favor of Moda, Inc., a health insurance company based in Portland, Oregon, that claims the federal government owes it more than $214 million in risk corridor payments for losses incurred when the plan signed on to the ACA.

A U.S. Court of Claims judge in February, 2017 sided with Moda and ruled that the government had to pay the risk corridor adjustments. However, that ruling conflicted with a separate ruling by a different judge that dismissed a similar suit brought forward by the now-defunct Land of Lincoln Mutual Health Insurance Co.  

The appeals court ruling this week examined both cases.

Writing in dissent Thursday, Appeals Court Judge Pauline Newman warned that the ruling against the payers could come back to haunt the government, whose "ability to benefit from participation of private enterprise depends on the government's reputation as a fair partner."

"By holding that the government can avoid its obligations after they have been incurred, by declining to appropriate funds to pay the bill and by dismissing the availability of judicial recourse, this court undermines the reliability of dealings with the government," Newman wrote.

Health Plans Cry Foul

Moda, Inc. President and CEO Robert Gootee said he was "disappointed by today's decision" and plans to appeal.

"We continue to believe, as our trial court did, that the government's obligation to us is clearly stated in the law and we will continue to pursue our claim on appeal," he said.

"If it is upheld on appeal, it will effectively allow the federal government to walk away from its obligation to provide partial reimbursement for the financial losses Moda incurred when we stepped up to provide coverage to more than 100,000 Oregonians under the ACA," he said.

America's Health Insurance Plans said the ruling could undermine the individual health insurance market and erode trust between the federal government and the private sector.  

"Courts have long recognized that companies doing business with the federal government — including but not limited to health insurance providers — must be able to rely upon the federal government as a fair and reliable partner," AHIP said in a media release.

"This protects not only the interests of the private market and consumers, but also the government's own long-term interest in maintaining strong partnerships with the private sector."

John Baackes, CEO of L.A. Care Health Plan, the nation's largest publicly operated health plan, said the ruling "was decided on a parsing of wording rather than the intent of Congress to provide insurers with a built-in subsidy so they would be able to provide participants on the exchange with affordable access to quality health insurance."

Federal Circuit Decision MODA by HLMedit on Scribd

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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