Locke Lord QuickStudy: Supreme Court Rules 8-1 That Government Must Pay Health Insurers Under ACA Risk Corridor Program

In a major win for health insurers, the U.S. Supreme Court ruled in an 8-1 decision that the federal government owes roughly $12.3 billion to health insurers who claimed losses under the risk corridor program of the Affordable Care Act (“ACA”) also known as Obamacare. Specifically, on April 27, 2020, in Maine Community Health Options v. U.S., the Supreme Court held that:

  1. the insurers have a right to payment under § 1342 of the ACA (the “Risk Corridor” program);

  2. “Congress did not repeal this obligation”; and

  3. the insurers “may sue the Government for damages in the Court of Federal Claims.” 

In support of the ruling, Justice Sotomayor cited Alexander Hamilton’s early papers on fiscal policy and explained: “These holdings reflect a principle as old as the Nation itself: The Government should honor its obligations.”

What Is The Risk Corridor Program?

The Risk Corridor program was created to temporarily share risks, both profits and losses and the risk of adverse selection, between insurers who offered qualified health plan coverage to individuals and small group, including those who participated in the ACA-created virtual health insurance marketplaces or exchanges, during the first three years from 2014 to 2016. The Supreme Court described the Risk Corridor program as requiring “[p]lans with profits above a certain threshold” to pay the Secretary of the Department of Health and Human Services (HHS), while “[p]lans with losses below that threshold would receive payments” from the Secretary. However, nothing in the ACA required the corridor charges from the plans to match the corridor payments  to plans. If the allowable costs were less than 97% of target then the insurer was required to pay HHS and if the allowable costs were more than 103% of target, then HHS was to pay the insurer.  The Risk Corridor program, which was always designed as a transitional program, ended in 2016. 

What Does This Ruling Mean For Insurers in General?

While the ruling will result in a financial benefit to many health insurers, the amounts will not be distributed evenly across the industry. Only those insurers which are currently owed money under the Risk Corridor program are entitled to receive funds. Furthermore, each such insurer must still sue for damages in the Court of Federal Claims, and some carriers may be willing to accept a compromise amount in return for speedy payment. Still there are over 100 plans that will be impacted by the ruling.

Impact on Insolvency and Receivership Proceedings

The decision may significantly impact those health insurance co-ops that have become insolvent since the federal government stopped funding the Risk Corridor program. Of the 23 health insurance co-ops that existed shortly after the passage of ACA, only four are still in operation. The receivers of the health insurance co-ops that are subject to state insurance receivership proceedings will now have the opportunity to collect risk corridor payments for the benefit of the insurers’ estates. The creditors of such insolvent health insurers, as well as the various state life and health and HMO insurance guaranty funds, which cover parts of the insolvent insurers benefits, will likely benefit from the collection of the Risk Corridor payments by the receivers and will receive a higher percentage of their claims in the estates.

Further Background And Legal Analysis Of The Opinion

The Court’s decision in Maine Community Health Options v. U.S came in four consolidated cases, including Moda Health Plan v. U.S., Blue Cross and Blue Shield of North Carolina v. U.S. and Land of Lincoln Mutual Health Insurance v. U.S. The insurers sued the Federal Government for damages in the United States Court of Federal Claims, alleging that § 1342 of the ACA obligated the Government to pay the insurers the full amount of their losses as calculated by the statutory formula. At the trial court level, courts were split on whether the Government was obligated under § 1342 to pay the insurers for their losses. The United States Court of Appeals for the Federal Circuit ruled for the Government in the appeals, and held that Congress’ appropriations riders repealed the Government’s obligation under § 1342.

In a 31-page decision delivering the opinion of the Court, Justice Sotomayor first explained that Congress “can create an obligation directly through statutory language,” and that this was precisely what it did through § 1342’s express and plain terms. The Government argued that the Appropriations Clause, Art. I, § 9, cl. 7, and the Anti-Deficiency Act, 31 U.S.C. § 1341, cause payments under § 1342 to be contingent on appropriations by Congress. The Court rejected that argument, holding that the “Government’s obligation was authorized by the Risk Corridor statute” and that “budget authority is not necessary for Congress itself to create an obligation by statute.”

Next, Justice Sotomayor answered whether Congress impliedly repealed its § 1342 obligation through subsequent appropriations riders. The Court held that implied repeals like the ones purported by the Government are not favored, and that the riders did not use the decisive language necessary to discharge the Government’s statutory obligation to pay under § 1342.

Finally, Justice Sotomayor analyzed whether the Petitioners properly relied on the Tucker Act to sue the Government for damages in the Court of Federal Claims. The Court held that the Petitioners’ statutory claim falls within the Tucker Act’s immunity waiver, because the statute can be fairly interpreted “as mandating compensation by the Federal Government” and there is no “separate remedial scheme supplanting the Court of Federal Claims’ power to adjudicate petitioners’ claims.”

In his dissent, Justice Alito writes that the ruling will have “the effect of providing a massive bailout for insurance companies that took a calculated risk and lost. These companies chose to participate in an Affordable Care Act program that they thought would be profitable.”