Federal Claims Court rejects insurer's ACA risk corridors suit

A new court ruling could force health insurers that do business with U.S. Department of Health and Human Services programs to check to see whether the agreements they have made with HHS are actually contracts.

Judge Charles Lettow, a judge at the U.S Court of Federal Claims, ruled Thursday that the HHS Affordable Care Act public exchange plan issuer agreements describe how HHS thought the ACA risk corridors program would work but are not binding contracts.

HHS officials, and the laws and rules governing the ACA risk corridors program, have not provided any express or explicit intent on behalf of the government to enter into contracts with the exchange plan issuers, Lettow writes in an opinion explaining his ruling.

Lettow issued the ruling in connection with Land of Lincoln Mutual Health Insurance Co. v. United States of America (Case Number 16-744C).

Land of Lincoln Mutual, which was based in Chicago, was a nonprofit, member-owned insurer created with loans from the ACA Consumer Operated and Oriented Plan program. The Illinois Department of Insurance began liquidating it in September.

Managers and Illinois officials say the insurer failed partly because the ACA risk corridors program ended up paying ACA exchange plan issuers less than 13 percent of what the ACA and HHS officials told the program would send money-losing ACA exchange plan issuers to help with 2014 losses.

Other carriers, including Pittsburgh-based Highmark have filed similar suits seeking risk corridor payments. Highmark claims the U.S. government only paid about $27 million of the $223 million it was owed in risk-corridor payments for 2014.

Drafters of the ACA created the public exchange system in an effort to help consumers shop for coverage on an apples-to-apples basis, to create a vehicle for distributing exchange plan premium tax credit subsidies, and to help make the tough ACA restrictions on medical underwriting practical, by increasing overall health insurance enrollment enough to make up for letting people with cancer and diabetes buy health coverage at standard prices.

The ACA drafters created the ACA risk corridors program in an effort to help ease insurers into participating in the new exchange system, by offering to use cash from issuers that did well on the exchange system in 2014, 2015 and 2016 to help issuers that did poorly during those years.

Exchange user fees

HHS officials said up until September 2015 that the ACA risk corridors program would take in enough money from thriving exchange plan issuers to make good on its 2014 obligations. Officials announced Oct. 1 that the program had actually taken in far too little cash to pay more than a small fraction of the 2014 obligations in 2015 or 2016.

HHS oversees all ACA public exchanges, and it operates the HealthCare.gov exchange plan enrollment systems in states that are unable or unwilling to set up state-based ACA exchanges. In the HealthCare.gov states, and only in those states, HHS had Land of Lincoln Mutual and other exchange plan issuers sign exchange plan issuer agreements.

The agreements set exchange plan issuer standards, and they require the issuers to pay user fees, but user fee provision in the contracts has no connection with the risk corridors program provision and does not constitute the kind of consideration that might create a contractual relationship, Lettow writes.

Representatives for HHS and the Land of Lincoln Mutual liquidators were not immediately available for comment on the ruling.

One factor affecting the future of the suit could be how officials in the Trump administration see the case.

Officials in the new administration could decide that any health insurers that depended on Obama administration statements about ACA programs should suffer the consequences of cooperating with the Obama administration.

Trump administration officials could also decide to take the side of the health insurers, either because they think that's the fair thing to do or because they want health insurers' help with moving major ACA replacement or ACA legislation through Congress.

Lettow, who was appointed to the Federal Claims Court by President George W. Bush in 2003, says siding with Land of Lincoln Mutual could help ACA opponents, by establishing a distinction between HealthCare.gov exchange plan issuers and the issuers sell through state-based exchanges. The state-based exchange issuers did not sign the same HHS exchange plan issuer agreements that the HealthCare.gov issuers signed, Lettow says. If the HealthCare.gov issuer agreements were contracts that gave the HealthCare.gov issuers a contractual right to receive risk corridors program payments, and the agreements signed by the state-based exchange issuers created no such contractual agreements, that could create an unintended outcome, Lettow says.

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