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Why Highmark's $223 Million PPACA Suit Matters to Agents

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Highmark has joined the legal battle to get the federal government to pay Patient Protection and Affordable Care Act (PPACA) risk corridors program benefits.

Highmark has filed a complaint seeking $223 million from the program in the U.S. Court of Federal Claims.

Lawyers filed the case, First Priority Life et al. vs. The United States of America (Case Number 16-587C), on behalf of Highmark and five other affiliates, including First Priority Life Insurance Company Inc., the Highmark unit that writes PPACA qualified health plan (QHP) coverage through the PPACA public exchange in Pennsylvania.

The plaintiffs say the USA violated PPACA Section 1342 by failing to meet what they assert are “mandatory risk corridor obligations” for 2014.

PPACA drafters created the program to help health insurers cope with the major new PPACA health coverage expansion programs, underwriting restrictions and benefits requirements that took effect in January 2014. The program is supposed to use cash from exchange plan issuers that have done well in 2014 and 2015, or will do well this year, to help issuers that struggled in 2014 or 2015, or will struggle this year.

On page 15 of the complaint PDF, the plaintiffs provide a chart showing how they believed the complicated program was supposed to work, with the government paying for half of losses exceeding between 3 and 8 percent of a “target amount” figure, and the government covering 80 percent of the cost of the losses over 8 percent.

Kevin Counihan, the director of the Center for Consumer Information & Insurance Oversight (CCIIO) and the chief executive officer of the Marketplace, or the PPACA exchange program, told state insurance regulators in July 2015 that the PPACA risk corridors program would collect enough revenue to make payments to insurers. He said regulators should take the payments into account when evaluating insurers’ proposed coverage prices for 2016.

On Oct. 1, CCIIO told insurers and regulators that it believed it would collect enough revenue to pay less than 13 percent of 2014 risk corridors program claims. 

See also: Feds: PPACA risk program may pay just 13% of 2014 claims

Earlier, Republicans in Congress succeeded at getting legislation forbidding the government from using taxpayer money to make risk corridors program payments into a budget measure that President Obama signed into law.

“Congress’s failure to appropriate sufficient funds for risk corridors program payments due for [Calendar Year] 2014, without modifying or repealing Section 1342 of [PPACA], did not defeat or otherwise abrogate the United States’ statutory obligations created by Section 1342 to make full and timely risk corridor payments to QHPs, including the plaintiff insurers,” the plaintiffs say.

The plaintiffs say the government has breached express and implied-in-fact contracts, breached covenants of good faith and fair dealing, and violated the insurers’ rights by taking their property without just compensation, in violation of the Fifth Amendment of the U.S. Constitution.  The plaintiffs are asking the court to make the government pay them the $223 million in risk corridors payments owed for 2014 and declare that the government also has to make any program payments that will be owed for 2015 and 2016.

Should health insurance agents and brokers care about this suit? For three ideas why might want to follow the case, read on.

Gorilla, for Highmark

1. Highmark has the deep pockets needed to make this fight a serious court fight.

Highmark is one of the largest health insurers in the United States. It runs Blue Cross and Blue Shield plans in the Pittsburgh area, Delaware and West Virginia. It’s also the parent of the United Concordia dental carrier and Davis Vision.

Another failed CO-OP, Health Republic Insurance Company of Oregon, has already filed a suit seeking $5 billion in risk corridors program money in the U.S. Court of Federal Claims.

See also: Oregon CO-OP sues for $5 billion in risk corridors cash

New York state regulators have hinted that they might bring legal action against the risk corridors program in an effort to help Health Republic Insurance of New York, a failed PPACA Consumer Operated and Oriented Program (CO-OP) carrier there, pay medical claims and other bills.

But Highmark is a much bigger company that Health Republic of Oregon was and appears to have more ability to pay legal fees.

Lawrence Sher, a partner at Reed Smith LLP, is representing Highmark.

A hand paying a bil, for Health Republic of New York

2. Some carriers need the risk corridors money to pay their bills.

Highmark has had the resources to pay claims and other obligations in spite of the risk corridors program shortfall, by officials in New York state have implied that Health Republic of New York may need risk corridors program money to pay all claims and have any hope of paying vendors other than health care providers.

For agents who have sold coverage for insolvent CO-OPs, efforts to collect unpaid commissions may depend on the outcome of the Highmark suit and similar suits.

See also: New York starts official Health Republic liquidation proceedings

U.S. Supreme Court and Highmark v. USA

3. A Supreme Court ruling on risk corridors payments could impact how congressional gridlock affects other federal health care programs.

The ruling may affect what kind of analyses insurers and other vendors need to perform when they are deciding how much faith they can put in future federal agency promises to pay for goods and services.

If the courts rule against Highmark, insurers might have to adjust Medicare plan contracts, Medicaid plan contracts and other contracts for the risk that the government might adjust the terms of the contract, without providing compensation, while the contract year is still under way.

See also:

PACA risk corridors gap rocks more carriers

National Underwriter’s 2015 Rogues Gallery


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