Several health plans sue government over ACA payments

Several lawsuits have been filed by qualified health plans (QHPs) offering coverage on the Affordable Care Act (ACA) health insurance exchanges. The QHPs are seeking risk corridors payments, a risk sharing protection provision established under the ACA to help stabilize the health insurance market.

The risk corridors payments, as designed, are meant to transfer money from QHPs with lower than expected losses to QHPs with losses above certain benchmarks. Because losses have exceeded amounts paid into the program and additional funds have not been appropriated, CMS paid only 12.6% of the $2.87 billion owed QHPs for 2014 and payments for subsequent years are uncertain.

At least six QHPs have filed lawsuits to require CMS to pay the full amounts:

• Health Republic Insurance Company of Oregon (HRIO), a Consumer Operated and Oriented Plan (CO-OP) created by the ACA (recently taken into receivership), filed the first case. Filed as a class action, the suit claims that the government had no right to reduce risk corridors payments. The class would include all QHPs not receiving their full payments-totaling $5 billion.
• CoOportunity Health, an insolvent CO-OP from Iowa and Nebraska, alleges the government is withholding $60 million in payments it is owed, plus $130 million in risk corridors payments.
• Highmark, a Blue Cross Blue Shield plan, followed with its lawsuit, seeking $223 million for 2014, and $500 million for 2015. 
• Blue Cross and Blue Shield of North Carolina also sued. It seeks $147 million for 2014, and full payment for 2015 and 2016.
• Moda Health Plan, Inc., operating in the Pacific Northwest, received $11 million of $89 million due for 2014, and is seeking $101 million for 2015. Moda blames its losses in part on CMS’s transitional policy that kept healthier individuals on existing plans and hurt the QHP risk pool. Moda is pulling out of the Alaska market where it is one of two competitors.
• The most recent suit was filed by the Illinois CO-OP, Land of Lincoln Health, now in liquidation.  Land of Lincoln claims it is owed $70 million in risk corridors payments and the lack of those funds has left the insurer in financial distress.

Next: Industry implications

Industry implications

With the exception of the CoOportunity case filed in federal district court, the lawsuits were filed in the U.S. Court of Federal Claims. The court of claims is a special court that can award money damages from the federal government. A standing appropriation provides funds awarded by the court of claims. As a result, if the QHPs prevail, the risk corridors payments can be paid despite the lack of an appropriation funding risk corridors. 

The government filed a motion to dismiss the HRIO case, claiming there is no deadline to make risk corridors payments, so the case is premature. Similar motions can be expected in the other cases. Other QHPs are likely following these cases. If the government’s motion fails, more suits can be expected. The federal government may also seek a global solution outside or as part of the court proceedings.

The risk corridors cases are more evidence of the broad scope of the ACA and that issues relating to its implementation remain unsettled.

Deborah Dorman-Rodriguez is a partner at Freeborn & Peters LLP, and serves as leader of the firm’s Healthcare Practice Group.

David Kaufman is a partner at Freeborn & Peters LLP, and serves as a key member of the firm's Healthcare Practice Group.