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DOJ Strengthens Legal Arguments Against Risk Corridor Payments

By Erin Mershon, CQ Roll Call

October 4, 2016 -- The Department of Justice (DOJ) is more aggressively rebuffing insurance company lawsuits seeking funds from a premium stabilization program of the 2010 health law—a move that could be a response to recent Republican opposition to the program.

In three filings this month, DOJ officials clearly stated that the federal government does not have a contractual obligation to pay insurers the money they expected to receive under the so-called risk corridors program that was part of the 2010 health law, which was intended to redistribute funds from plans with relatively healthy enrollees to those with relatively sicker ones. DOJ's arguments were more forceful than its previous responses to similar lawsuits.

At least a dozen insurers have filed lawsuits this year claiming they are owed money under the program, which in its first year paid plans just 12.6 percent of what they expected to receive. That shortfall is in part because the program brought in far less than originally expected. Legislative riders on the 2015 and 2016 spending packages (PL 113-235, PL 114-113) further restricted funds for the program. In the last week alone, New Mexico Health Connections and Blue Cross Blue Shield of Minnesota filed new cases, seeking $23 million and $6 million in unpaid funds, respectively.

The DOJ's position in the latest briefs is somewhat at odds with recent statements from officials at the Centers for Medicare and Medicaid Services (CMS). CMS said it was open to discussions about settling the suits in a Sept. 9 bulletin to insurance companies, which congressional Republicans interpreted as acknowledgement the agency owed insurers at least some money.

"What we've always said is the risk corridor payments are an obligation of the federal government," Acting Administrator Andy Slavitt said in a Sept. 14 hearing.

The agency expressed similar thoughts in its bulletin.

"HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers," CMS officials wrote. "HHS will record risk corridors payments due as an obligation of the United States Government for which full payment is required."

But DOJ's briefs say expressly that even if federal health officials have said they had an obligation to pay back the expected funds, there's still no legal obligation to do so. DOJ makes the arguments in motions to dismiss cases from the Land of Lincoln Mutual Health Insurance Company, an Illinois nonprofit plan that folded, as well as Blue Cross Blue Shield of North Carolina and Moda Health Plan.

"Under [the insurer's] interpretation, HHS would be the uncapped insurer of the insurance industry itself, under criteria—the ratio of a plan's allowable costs to its aggregate premiums—which are wholly dependent upon issuers' business judgment. Congress did not intend that result," DOJ writes in the three briefs.

Evolving Argument

In an earlier motion to dismiss in similar cases against the insurer Health Republic, DOJ merely contested the insurer's arguments that the claims were ripe for consideration. DOJ said in that case that because the risk corridor program was ongoing and further payments could be made, litigation was premature.

The first motion that relies on the more vigorous defense was filed Sept. 23, the deadline for plans' decisions to commit to participating in the public exchanges. The other two were filed Friday.

"In the first case that came up for briefing—they simply made a jurisdictional argument and said the payments are not yet due," said Tim Jost, an emeritus professor at the Washington and Lee University School of Law. "Now they're saying the payments are not yet due and will never be due. They said they would vigorously defend these cases, and now they're vigorously defending them."

Lawyers and experts familiar with the briefs suggested several different reasons for the more assertive position from DOJ in the recent cases. Several said it could be an attempt to better position the agency as it begins settlement talks with some of the insurers who have sued, as CMS signaled it was willing to do.

"They didn't have to delve into the merits as much as they did. They didn't really have to go there but they chose to go there," said Nicole Elliott, a partner at Holland Knight and a former DOJ attorney. "I don't know DOJ's litigation strategy, but they could be coming out swinging in hopes of negotiating better deals."

Neither HHS or DOJ commented on the filings.

Attorneys also suggested the discrepancies reflected internal administration disagreements about how best to proceed.

"CMS—they're coming at it from an administrative, agency implementation perspective, rather than a legal argument perspective," Deborah Dorman-Rodriguez, an partner at Freeborn & Peters LLP and a former insurance company executive, said. "The DOJ is not going to concede in a brief that payments are owed, just because of the nature of litigation. They need to put forth a party's best argument."

The new position could also be a response to increasing political backlash from Republicans on the Hill, who in recent weeks questioned the administration about its plans to settle and sent multiple letters to both DOJ and HHS asking for more information about settlement talks and the authority to use an obscure fund to pay out any settlements. On Tuesday, Energy and Commerce Chairman Fred Upton sent a new round of letters to insurance companies asking for more information about the settlement talks.

This month, "there has been even more pressure from those factions in Congress that are opposed to the Affordable Care Act, that are opposed to funding the risk corridors program beyond what it takes in," said Sandra Durkin, an associate at the Butler Rubin law firm. "There's been sustained political pressure that's been going on consistently and maybe even has stepped up from that time."

No matter the strategy, the filings are problematic for insurance companies.

"It is a little unclear what the administration's overall game plan is," Elliott said. "But insurers should definitely be worried about the mixed messages they seem to be getting."

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