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Supreme Court Finds Insurers Entitled to Millions in ACA Payments

Client Alert

Authors: Barak A. Bassman, Sara B. Richman, Leah Greenberg Katz, Virginia Bell Flynn and Tracy Rhodes

4/29/2020
Supreme Court Finds Insurers Entitled to Millions in ACA Payments

On April 27, the U.S. Supreme Court held that the federal government is on the hook for $12 billion it failed to pay insurers under the Affordable Care Act (ACA) risk-mitigation program known as the Risk Corridors Program. The decision, Maine Community Health Options v. United States, likely has significant implications for ongoing litigation over the government’s obligations under the ACA, especially for cost-sharing reduction payments that the Trump administration has suspended since October 2017.

Statutory Background

The ACA expanded health care coverage to many Americans by, among other things, establishing online marketplaces where every American could buy coverage regardless of individual medical history. To incentivize insurers to enter those marketplaces, the ACA also created several risk-mitigation programs, including the Risk Corridors Program.

The Risk Corridors Program was designed to address the insurance underwriting risk of new marketplaces without historical data to guide pricing actuaries. To dissuade insurers from raising rates to consumers with defensive risk premiums built into their pricing, the ACA created a “risk corridor” in which the government agreed to share the risk with insurers for the first three years of the new marketplaces (2014-2016). The statutory scheme was structured to collect money from profitable insurers and distribute money to unprofitable insurers. Per the statutory formula, insurers kept profits and losses within a 3 percent underwriting margin. If an insurer’s gains exceed the 3 percent threshold, the statute demands that the insurer “shall pay” its excess back into the program. Alternatively, for insurers with losses exceeding this threshold, the statute demands that the government “shall pay” them in order to partially reimburse these losses.

Each of the program’s three years ended in a deficit in which the profitable insurers’ payments into the program were substantially less than the amounts owed by the government. In fact, the deficit over three years totaled more than $12 billion. And each year, Congress enacted appropriations bills with riders stating appropriations could not be used to bridge this gap.

Supreme Court’s Decision

The petitioners — four health insurance companies that participated in health care exchanges — sued the federal government for damages in the U.S. Court of Federal Claims in four separate cases, alleging that the Risk Corridors Program required the government to reimburse their losses as calculated by the statutory formula. The trial courts reached conflicting decisions. Thereafter, in each appeal, the U.S. Court of Appeals for the Federal Circuit found for the government, holding that although the statute initially created a government obligation to pay amounts as determined by the statutory formula, the subsequent congressional appropriations riders “repealed or suspended” that obligation.1

The Supreme Court granted certiorari to consider: (1) whether the Risk Corridors Program obligated the government to pay participating insurers the full amount calculated using the statutory formula, (2) whether any obligation survived Congress’s appropriations riders, and (3) the whether petitioners may sue the government under the Tucker Act. By an 8-1 margin, the Court answered yes to each question and reversed the Federal Circuit.

First, “[T]he Risk Corridors statute created a [g]overnment obligation to pay insurers the full amount set out in [the statutory] formula.” Key to the Court’s holding was the plain language of the statute, which without any language tying the obligation to the availability of funds, provided that the government “shall pay” insurers that suffered certain losses during the three-year program. The Court noted that Congress can “create an obligation directly by statute, without also providing details about how it must be satisfied.” Accordingly, the use of the word “shall” “imposed a legal duty on the United States” that was “neither contingent on nor limited by the availability of appropriations or other funds.”

Second, Congress did not impliedly repeal the obligation through its appropriations riders. The Court noted that repeals by implication are disfavored, and that Supreme Court precedent establishes that the “mere failure to appropriate does not repeal or discharge an obligation to pay.”2 Like its earlier precedent, the Court explained that where, as here, “Congress ‘merely appropriated a less amount’ than that required to satisfy the [g]overnment’s obligation, without ‘expressly or by clear implication modif[ying] it,’” the government’s payment obligation stands.

Third, the petitioners properly relied on the Tucker Act to sue for damages. The Tucker Act permits certain claims against the United States, but does not create substantive rights; rather, the action must be premised on “‘other sources of law.’” Whether a claim is permitted under the Tucker Act generally turns on a “fair interpretation” test, though there are some exceptions. Here, the Court found, “Petitioners clear each hurdle: The Risk Corridors statute is fairly interpreted as mandating compensation for damages, and neither exception to the Tucker Act applies.”

The Court concluded, “These holdings reflect a principle as old as the Nation itself: The [g]overnment should honor its obligations.”

Implications

Justice Alito’s lone dissent warns that this decision will “have a massive immediate impact,” in that “billions of taxpayer dollars will be turned over to insurance companies that bet unsuccessfully on the successes of the program in question.” In addition, “its potential consequences go much further”; the phrase the “Secretary shall pay,” which the Court construes as creating a cause of action, “appears in many other federal statutes.”

More directly in the context of the ACA, beginning in October 2017, the federal government stopped making mandatory cost-sharing reduction payments (CSRs) to insurers under the ACA, based on the lack of a specific appropriation for this obligation. Numerous insurers then filed suit in the Court of Federal Claims, including in a class action. The trial courts ruled in favor of the insurers, and four cases are now consolidated on appeal before the Federal Circuit.3 The insurers’ argument in the CSR cases mirrors the claim in the Risk Corridors dispute: that the lack of an appropriation does not defeat the payment obligation created by the ACA. And unlike the temporary three-year Risk Corridors Program, the CSR program — which helps pay for reduced co-payments and deductibles for lower-income insureds — is permanent.

Endnotes

1 Moda Health Plan, Inc. v. United States, 892 F. 3d 1311 (Fed. Cir. 2018).

2 United States v. Vulte, 233 U.S. 509 (1914); United States v. Langston, 118 U.S. 389, 393-94 (1886).

3 Sanford Health Plan v. United States, Nos. 2019-1290, 2019-1302, 2019-1633, 2019-2012 (Fed. Cir.).

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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