Implementing Health Reform. The risk corridor program is one of the Affordable Care Act’s three premium stabilization programs. It was modeled after the Medicare Part D prescription drug program’s successful risk corridor program, which has been in operation now for a decade. Like the Part D program, the ACA risk corridor program was designed to attract normally risk-averse insurers into offering a new product to a new population with uncertain prospects. As does the Part D program, the ACA program collects contributions from participating insurers that make profits that exceed certain “risk corridors” and make payments to insurers whose losses fall outside those risk corridors.
Unlike the Part D risk corridor program, however, the ACA program is not permanent but is only authorized for three years. Marketplace insurers, that is, have a much shorter time frame to figure out the market and get on their feet than Part D prescription drug plans have had.
Nothing in the statutory provision creating the ACA program required it to be revenue neutral. Indeed, as was true with the Part D program, there was no guarantee that winners under the program would predominate over losers (although the federal subsidies to insurers under the Part D program are much greater than those under the ACA, so that more Part D insurers in fact regularly pay into the program rather than collect). Marketplace insurers entered the program in 2014 with the belief that risk corridor payments would be made if they were due under the statutory formula regardless of the level of collections, although the Centers for Medicare and Medicaid Services (CMS) had stated that if payments owed exceeded collections, 2014 payments might not be made until later in the program. And the Comptroller General, the referee for federal expenditures, opined in 2014 that if collections fell short of payment obligations, the shortfall could be made up from CMS general appropriations.
Near the end of 2014, however, Congress attached a rider to its 2015 appropriations bill, providing that the risk corridor program had to be revenue neutral — CMS could only pay out funds under the program that it collected under the program. Congress has renewed this rider for 2016 as well.
In the end ACA insurers collectively incurred $2.87 billion in losses exceeding the risk corridor boundaries, but only ended up owing $362 million in contributions. CMS was able to pay out only $0.126 on the dollar to insurers owed payments, although it reiterated its intent to pay out the full amount owed over the life of the program. This funding shortfall resulted in severe losses for a number of insurers, and several, including a number of consumer cooperative (CO-OP) plans became insolvent.
The Tucker Act Strategy
A number of insurers injured by this action have now sued under in the Court of Claims under the Tucker Act, which permits claims against the government when it violates its constitutional, statutory, or contractual obligations. They are claiming that the statute guarantees them full risk corridor payments, and that the limits placed on payments are in violation of their rights. This strategy could allow an end run around the appropriation limitation because there is a permanent appropriation for the “Judgment Fund,” out of which successful claims under the Tucker Act are paid.
There was some speculation as to whether the Obama administration would defend the limitations that Congress placed on the program’s funding, since it has maintained all along that full payment would somehow be made. On June 24, 2016, the administration filed its first pleading in one of these cases, a motion to dismiss a class action filed by Health Republic Insurance Company. Instead of arguing that the insurer has no claim on the merits, however, it simply argued the claim is premature.
A claim can only be made under the Tucker Act for “presently due money damages.” The administration argues that the risk corridor program is meant to pay out the amount owed over the three years of the program rather than on an annual basis. A shortfall in one year can be made up in a future year. The administration also argues that the plaintiff’s claim is not yet ripe for adjudication, as the administration has not yet set risk corridor payments for 2015 or 2016 and thus the total amount due Republic and other insurers cannot yet be known. Finally, the administration’s brief notes that the Court of Claims lacks jurisdiction in this case to award injunctive or declaratory relief, interest, or other damages the plaintiffs are seeking.
The administration thus seems to be threading a needle. It is not clearly defending Congress’ action in limiting payments, although it does acknowledge that it cannot pay out funds if it is specifically prohibited by an appropriations act from doing so. But neither is it refusing to defend the lawsuit, something that administrations have occasionally done in the past when they strongly object to legislation and do not want to defend it.
It will in any event take some time for these cases to be resolved, and the risk corridor program, which expires this year, may well be wound up by the time they are. If Congress once again restricts program funding to program contributions for 2017, and if insurer losses continue to exceed insurer profits, the administration will have to confront squarely the question of whether or not the insurers are correct that the risk corridor statute guarantees full funding for the program regardless of subsequent appropriations.
CMS Issues Auto-Reenrollment Guidance To States
On June 23, CMS announced at its REGTAP.info website (registration required) that it had sent a June 17 notice to state regulators. The notice outlines the steps that CMS expects regulatory authorities in states with federally facilitated marketplaces, state partnership marketplaces, and state-based marketplaces using the federal enrollment platform to take if they intend to direct auto-reenrollment for the 2017 enrollment year. CMS will itself direct auto-reenrollment itself for enrollees in qualified health plans (QHPs) in the individual market in states that did not notify CMS of their intent to direct auto-reenrollment by June 24, 2017.
States that elected to direct auto-reenrollment must respond to the guidance from CMS and submit a crosswalk template to CMS before August 16, 2016. States may not crosswalk QHPs that are no longer available in the marketplace to multiple plans within a county. The states must notify insurers of their final auto reenrollment decisions and coordinate and communicate with CMS.
In states that decline to direct auto-reenrollment of enrollees in QHPs that are no longer available in the marketplace, CMS will auto-reenroll affected enrollees in another QHP available in the marketplace applying an eight-step hierarchy that tries to maintain to the extent possible the metal level and product network type in which the enrollee was previously enrolled. CMS will notify state regulatory authorities of auto-reenrollment determinations before informing insurers.