One of the most litigated questions under the Affordable Care Act (ACA) is whether the United States government owes health insurers that offered qualified health plans (QHPs) through the ACA’s marketplaces the full amount that would be due them under the formula found in the ACA’s risk corridor statute and regulation. At least 17 cases brought by insurers are now pending in the Court of Federal Claims, one of which has been certified as a class action. An additional case is pending on appeal in the United States Court of Appeals for the Federal Circuit.
The Court of Federal Claims has about as many judges as there are pending risk corridor cases, and none of them are bound to follow the decisions of the other judges. In November of 2016, one of the judges dismissed one of the cases, ruling against Land of Lincoln Health Mutual Health Insurance Company; that case is now on appeal. In early January another judge refused a motion to dismiss on jurisdictional grounds a case brought by Health Republic, but did not rule on the merits.
On February 9, 2017, a third judge entered a partial summary judgment in favor of Moda Health Plans. This is the first victory for a health plan on the question of liability in a risk corridor challenge. This post covers that decision and also briefly discusses updates to IRS questions and answers on premium tax credits and the individual mandate.
The risk corridor program is, along with the risk adjustment and reinsurance programs, one of the Affordable Care Act’s three premium stabilization programs. It was designed to attract normally risk-averse insurers into offering a new product to a new population with uncertain prospects during the first three years of the health insurance marketplaces. It collects contributions from participating insurers that made profits that exceed certain “risk corridors” and makes payments to insurers whose losses fall outside those corridors. It was only in force for 2014, 2015, and 2016.
Nothing in the statutory provision creating the ACA program required it to be revenue neutral. Insurers entered the marketplaces in 2014 believing that risk corridor payments would be made if they were due under the statutory formula regardless of the level of collections. In 2014, however, nine months after health plans had submitted their rates for 2014 and three months after they had begun marketing qualified health plans (QHPs), CMS began to describe the program as budget neutral.
Near the end of 2014, Congress embraced the notion of budget neutrality, attaching a rider to its 2015 appropriations bill providing that HHS could not use CMS program management funds to cover risk corridor payments, as it had apparently intended to do. This left the agency to pay for its obligations under the program out of money it collected from profitable insurers. Congress renewed this rider for 2015 payments as well.
In the end, ACA insurers in 2014 collectively incurred $2.87 billion in losses exceeding the risk corridor boundaries, but only ended up owing $362 million from excess profits. CMS was able to pay out only $0.126 on the dollar to insurers owed payments for 2014. For 2015, insurers incurred $5.8 billion in losses covered by the risk corridor program, but owed only $95 million in contributions, all of which were applied to the 2014 obligation.
The Court’s Opinion
Moda, which provided coverage in Oregon and Alaska in 2014 and in Oregon, Alaska, and Washington State in 2015, claimed that it was underpaid $214,396,377 for 2014 and 2015. Court of Claims Judge Thomas Wheeler ruled in its favor on liability; Moda had only asked for a judgment on liability and the court did not address the question of damages.
Judge Wheeler began his opinion recounting at length history of the legislation, regulations, and guidance that have governed the risk corridor program. In particular, he described the reliance of health plans on the availability of risk corridor funds in offering marketplace coverage, the late emergence of the budget neutrality requirement, and the limited scope of the appropriations riders that Congress adopted in 2014 and 2015.
Judge Wheeler next proceeded to consider the jurisdiction of the Federal Court of Claims. The Court of Claims only has jurisdiction over cases where the statute or regulation at issue provides that the government “shall” pay an amount of money, or where the government breaches its contractual obligations. The judge noted that the ACA’s risk corridor program does in fact say that the Secretary of HHS “shall pay” specific amounts to insurers that qualify for payment under the statute.
Judge Wheeler also held that Moda’s complaint set out the essential elements of a contractual claim. He further concluded the Moda’s claim was ripe for adjudication because the risk corridor statute and HHS’s initial interpretation of it had provided for annual payments. The government had argued that the risk corridor program was a three-year program and payments were not due until 2016 obligations were determined in 2017.
Judge Wheeler then moved on to the question of liability. He carefully considered the language of the ACA risk corridor provision, its roots in the Medicare Part D drug benefit risk corridor program, the analyses of the provision by the Congressional Budget Office and Government Accountability Office, and HHS’s initial interpretation of the provision. He concluded that the statute created an obligation to pay the insurers and was not limited to budget neutrality.
He further concluded that the 2014 and 2015 appropriations riders did not limit the government’s obligation. The riders did not clearly manifest Congressional intent to repeal the obligation of the government under the underlying law, but rather only cut off one source of funding for the risk corridor program. In fact, Judge Wheeler held, another source of funding is available—the judgment fund, which is a standing appropriation to pay plaintiffs who prevail against the United States in the Court of Claims.
Judge Wheeler proceeded to hold that Moda was also entitled to judgment on the merits because the United States had breached an implied contract with it. Congress had created a program that offered private insurers a specified incentive for voluntarily marketing QHPs through the marketplaces. Moda accepted the government’s offer and sold QHPs, suffering losses at a level that qualified it for risk corridor payments. HHS had authority under the ACA to enter into the contract. There was a contract, and the government breached it.
Finally, Judge Wheeler stated:
There is no genuine dispute that the Government is liable to Moda. Whether under statute or contract, the Court finds that the Government made a promise in the risk corridors program that it has yet to fulfill. Today, the Court directs 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.”
The government will undoubtedly appeal the case to the Federal Circuit. The Federal Circuit has jurisdiction over all Court of Federal Claims cases and will no doubt resolve the conflict that now exists between the judges. It is possible, however, that this dispute will end up in the Supreme Court. Billions of dollars are at stake.
Updates To Q&As on Premium Tax Credits And The Individual Mandate
On February 8, 2017, the Internal Revenue Service updated the Questions and Answers on the Premium Tax Credit page on its website. The Q&As set out the rules surrounding premium tax credits, most of which are well established. A few, however, relate to lesser known premium tax credit eligibility issues. Q & As 13 and 14, for example, explain that if an employee or employee’s spouse is eligible for minimum value affordable employer coverage, but the employer threatens to fire the employee if the employee or the employee’s spouse enrolls, the employee is not in fact eligible for employer coverage and can receive a premium tax credit.
Q&A 15 clarifies that if an employee’s spouse or child are eligible for family coverage under an employer’s plan, but only if the employee enrolls in coverage, and the employee chooses not to enroll in affordable, minimum value coverage, the spouse and dependent are not eligible for premium tax credits because they had affordable, minimum value coverage available through the employee.
The IRS also updated its Individual Shared Responsibility page on February 3, providing further evidence, if any was needed, that the individual mandate is still being enforced.