Appellate Court Rules Insurers Not Entitled to Payments Under Risk Corridors Program

A three-judge panel majority of the U.S. Court of Appeals, Federal Circuit, has reversed the decision of the Court of Federal Claims, ruling on both statutory and contract grounds that a health insurer is not entitled to full payment under the risk corridors program established by the Affordable Care Act (ACA). (In a companion case, the same court used similar reasoning to rule against another insurer.) As background, several cases have been brought before the Court of Federal Claims seeking payment under the federally administered risk corridors program that was intended to protect insurers against inaccurate rate setting (due to inadequate data about the expanded insured population) in qualified health plans in the first three years of the Exchanges (2014–2016) by limiting insurers’ losses and gains based on claims experience (see our Checkpoint article).

While the appellate court agreed with the insurer that the ACA’s plain language obligated the government to make full risk corridors payments, it held that appropriations legislation, first enacted for the 2015 fiscal year (see our Checkpoint article) and repeated for 2016 and 2017, suspended that obligation by ensuring that the government would never pay out more than it collected from insurers over the life of the program. The court noted that HHS’s transitional policy, first announced in 2013 (see our Checkpoint article) and later extended for the duration of the risk corridors program, dampened Exchange enrollment and exposed Exchange insurers to greater risk than they anticipated when setting premiums. Although HHS indicated it would adjust the risk corridors program to offset these additional losses, Congress made a different “policy choice” by capping payments through the appropriations legislation. The court also dismissed the breach of contract claim, which alleged that the government made an implied promise of full payments to insurers under the statutory formula in return for participation in the Exchanges, finding that the risk corridors program was intended to create incentives for insurers but not contractual obligations for the government.

EBIA Comment: Given that more than $12 billion dollars in risk corridors payments for 2014–2016 are at stake, insurers may request a rehearing by the full appellate court on this issue. Another area to watch is the ongoing litigation against the federal government brought by insurers over unreimbursed cost-sharing reductions—under the ACA, insurers are required to reduce cost-sharing features such as deductibles and copayments for certain low-income individuals who enroll in Exchange coverage and qualify for premium tax credits. In 2017, the Trump administration stopped reimbursing insurers for cost-sharing reductions (see our Checkpoint article), setting up this issue for potential resolution by the courts. For more information, see EBIA’s Health Care Reform manual at Sections XIV.A (“Introduction and Understanding Small and Large Group Markets”), XX.D (“Risk Corridors”), XXI.B.4 (“Individual Eligibility Determinations”), and XXIX.F (“Premium Tax Credits for Lower-Income Individuals”).

Contributing Editors: EBIA Staff.