Supreme Court Rules Insurers Owed Risk-Corridor Payments

In a legal win for health insurers, the U.S. Supreme Court ruled today that insurers are entitled to ACA risk corridor payments that were designed to buffer insurers from losses in the ACA individual and small-group markets during in 2014, 2015, and 2016.

The back payments could total $12 billion. The practical effect, though, is hard to predict because it is not clear when insurers will receive the money - before or after rates are set for 2021. And there’s still some legal maneuvering available that could impede or even block the money from reaching them.

Supporters of the ACA say blocking risk-corridor payments was one of several Jenga moves by Republican opponents of the law that removed or blunted important parts of the healthcare reform law and kept the nascent ACA insurance markets from functioning the way the designers of the law intended they would. 

“The Supreme Court just ruled that @MarcoRubio and Congress were wrong to prohibit the Obama Admin paying risk corridors to reduce premiums in the ACA in the early years,” tweeted Andy Slavitt, a CMS administrator during the Obama administration and a strong defender of the ACA. “Congress did anyway, causing insurers to leave & raise rates. This should never have happened.”

The CNBC headline: "Supreme Court Sides With Insurers in Obamacare Case That Leaves Government on the Hook for $12 Billion."

The 8-1 majority opinion, written by Justice Sonia Sotomayer, noted that Section 1342 of the ACA, which has the language that set up the risk corridor program, did not require it to be budget neutral and that subsequent Congressional Budget Office (CBO) scoring and some early HHS opinions didn’t either. The ACA “established a money-mandating obligation” and the insurers can sue the federal government for the funds, wrote Sotomayer. “These holdings reflect a principle as old as the nation itself: The government should honor its obligations,” her opinion concluded.

AHIP, the health insurance trade association, issued a statement quoting from the Sotomayer’s opinion and said the federal government “made a clear commitment in the interest of building stable markets and making coverage more affordable for individuals and small employers.”

The ACA risk corridor program was modeled after a similar one for Medicare Part D. Notionally, the winners in a new insurance market are supposed to offset the losses of the losers and so insurers who made more money than expected in the then-novel and actuarially uncharted ACA markets would make payments to the federal government that would cover payments  to insurers who didn’t fare well. According to a short history of the legal case  published by The Commonwealth Fund last fall, the Part D risk-corridor program has consistently paid money to the federal government. The ACA risk-corridor program was also expected to also come out ahead. In fact, in February 2014, the CBO projected that payments into the program would exceed payouts by $8 billion over three years.

Just the opposite happened, partly because the people who bought ACA coverage had more health problems than what the actuarial projections anticipated. According to Sotomayor's opinion, the program had a $2.5 billion deficit in 2014, a $5.5 billion one in 2015, and a $3.95 billion one in 2016, its third and final year.

According to the Commonwealth Fund’s account, as late as March 2013, CMS said insurers would be paid risk-corridor payments. The next year, though, CMS started to talk about revenue neutrality and near the end of that year, Congress attached a rider to its 2015 appropriations bill that effectively required revenue neutrality and that, in turn, meant no risk-corridor payments.

The key legal in the case was whether those appropriations riders passed by Congress effectively extinguished the federal government’s obligation to pay risk-corridor payments under the ACA.  Justice Samuel Alito, the lone dissenter, shifted the argument to whether the insurers had a legal right to bring their suit, and his dissent was anchored in doubts about whether they did.

The case, Maine Community Health Options v. United States, consolidated similar cases brought by Blue Cross and Blue Shield of North Carolina, Moda Health Plan, and Land of Lincoln Mutual Health Insurance.