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Supreme Court to Hear Case on Affordable Care Act’s Risk Corridors

Supreme Court and ACA risk corridors

On December 10, the Supreme Court will hear oral arguments in lawsuits brought by four health insurers seeking damages against the United States for its failure to fully pay risk-corridor payments promised by the Affordable Care Act (ACA). So far, this is the only ACA case the Supreme Court has accepted for hearing during the current term.

The ACA Risk-Corridor Program

The temporary risk-corridor program was one of three programs (along with temporary reinsurance and permanent risk-adjustment) the ACA created to stabilize health insurance premiums and backstop insurance companies willing to offer a new and risky product — that is, comprehensive, guaranteed issue, individual and small-group insurance that covers preexisting conditions. ACA § 1342 set out a formula under which insurers in the individual and small-group market with losses or profits beyond certain “risk corridors” would share those losses or profits with the government for the first three years of the new coverage: 2014, 2015, and 2016.

The program was modeled after the risk-corridor program in the Medicare Part D outpatient drug program, under which private drug plans have consistently returned money to the federal government. In February 2014, the Congressional Budget Office estimated that payments into the risk-corridor program by insurers would exceed payments paid out by the government by $8 billion over the three years (i.e., the program would be in the black). Although nothing in § 1342 requires the program to be revenue-neutral, Congress appropriated no funds for the program.

As late as March 2013, the Centers for Medicare and Medicaid Services (CMS) said insurers would be paid what they were owed under the program regardless of how much the government collected through the program. Insurers set their rates for the opening of the exchanges in 2014 based on this understanding. In the spring of 2014, however, CMS began to say that payments on a year-to-year basis would be revenue-neutral, leaving open the question of how obligations remaining at the end of the program would be handled. Also in 2014, the Government Accountability Office, the official watchdog of government expenditures, opined that program shortfalls could be covered through CMS general appropriations.

Near the end of 2014, however, Congress attached a rider to its 2015 appropriations bill, blocking the expenditure of CMS funds to pay for the program, effectively requiring revenue-neutrality. By then, insurers were already marketing coverage for 2015. Congress renewed this rider for 2016 and 2017.

In fact, insurers’ claims under the program exceeded government collections for 2014 by an 8-to-1 ratio. This was partly the result of CMS deciding late in 2013, after insurers had already started marketing 2014 plans, that states could allow individuals and small groups to keep their 2013 ACA-noncompliant plans, siphoning healthy individuals and small groups from the ACA risk pool.

Over the three-year period, claims from insurers exceeded the amounts collected by the government by $12.3 billion. A number of insurers became insolvent, including many of the plans established under the ACA’s Consumer Operated and Oriented Plan Program. The remainder of the insurers left the program or dramatically raised premiums for 2017 and 2018. State guaranty funds, administered by almost all states to protect policyholders in the case of insurer default or bankruptcy, ended up responsible for the obligations of insolvent insurers.

The Lawsuits

More than 50 lawsuits were filed in the U.S. Court of Federal Claims (Court of Claims) by insurers who had losses under the risk-corridor program, including a class action suit with about 150 claimants. The insurers sued under the Tucker Act, which permits claims against the government when it violates its constitutional, statutory, or contractual obligations. The lawsuits assert that § 1342 itself obliges the government to pay funds owed under the risk-corridor formula, regardless of whether Congress appropriated funding for the program and of the appropriations rider. Lawsuits also claim that the government breached a contract with the insurers, which was formed when insurers began marketing ACA coverage that relied on the risk-corridor statute.

Four of these cases were decided by Court of Claims judges: one decision for the insurers and three for the government. In a divided opinion, the U.S. Court of Appeals for the Federal Circuit, which hears all appeals from the Court of Claims, held that § 1342 creates an obligation from the government to the insurers, but that the appropriations riders extinguished that obligation. It also held that no contractual obligation was created by the risk-corridor program. The insurers petitioned the entire Federal Circuit for a review before all the judges (i.e., en banc review), which was denied with two dissents.

The Supreme Court granted the insurers’ request to take the case. All four cases are being argued together. The insurers contend that § 1342 created an obligation, which was not repealed by the appropriation riders, and also that the riders could not have repealed the obligation retroactively. The insurers also reassert their argument that the government breached an implied contract under which they would be paid for their losses if they participated in the exchanges. Nine amicus curiae briefs have been filed in support of the insurers, including from the United States Chamber of Commerce, the National Association of Insurance Commissioners, and a bipartisan group of attorneys general from 24 states and the District of Columbia.

The resolution of these cases has ramifications well beyond the affected insurers. Many government programs, including health care programs such as Medicare Advantage and Medicaid managed care, but also housing, transportation, infrastructure, and energy programs, rely on public–private partnerships. As Judge Newman said in her Federal Circuit dissent,

[t]he government’s 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.

It would be surprising if the Supreme Court effectively ordered the government to pay $12.3 billion to the insurers. But the Court did not have to take this case — the Federal Circuit has sole appellate jurisdiction over the Court of Claims and its judgments are the end of the line without Supreme Court review. Some of the justices must believe there is a question here worthy of the Court’s consideration.

Publication Details

Publication Date: October 25, 2019
Contact: Timothy S. Jost, Emeritus Professor, Washington and Lee University School of Law
Citation:

Timothy S. Jost, “Supreme Court to Hear Case on Affordable Care Act’s Risk Corridors,” To the Point (blog), Commonwealth Fund, Oct. 25, 2019. https://doi.org/10.26099/pwc0-k005

Experts

Emeritus Professor, Washington and Lee University School of Law