A litigation funding firm has placed a bet suggesting that it thinks insurers and states may have a reasonably good chance to collect the payments originally promised by the Affordable Care Act risk corridors program.
Juris Capital L.L.C. has agreed to pay $10.5 million to the estate of HealthyCT Inc., a failed health insurer, in exchange for the right to collect up to about $31 million from an amounts the insurer’s liquidators end up getting from the risk corridors program.
The Chicago-based firm previously agreed, in late 2016, to pay $1,055,000 to acquire corridors program recoveries from the liquidators of Land of Lincoln Mutual Health Insurance Company. Under the Land of Lincoln Mutual recovery formula, Juris Capital could collect up to $3.3 million from any Land of Lincoln Mutual risk corridors lawsuit recoveries.
The Connecticut insurance regulators liquidating HealthyCT are suing for at least $35 million in payments from the risk corridors program on behalf of HealthyCT. The Illinois regulators liquidating Land of Lincoln Mutual are suing for about $76 million. The ratio of the amounts Juris Capital is paying for recovery rights to the maximum amount Juris Capital could get implies that the firm thinks the HealthyCT and Land of Lincoln Mutual liquidators have at least a 25% chance of getting the risk corridors program recoveries sought.
HealthyCT and Land of Lincoln Mutual were health nonprofit, member-owned carriers started with loans from the Affordable Care Act Consumer Operated and Oriented Program. The CO-OP system was supposed to improve competition in the individual and small-group major medical markets, by creating new carriers that would put enrollees’ interests first.
The 23 CO-OPs formed ended up suffering from the effects of early Affordable Care Act enrollment system glitches, tight federal restrictions on their marketing and financing efforts and their own operational problems.
The CO-OPs also suffered from problems with two Affordable Care Act programs that were supposed to protect insurers against Affordable Care Act-related risk. One of the programs, the risk-adjustment program, was supposed to use cash from individual and small-group health coverage issuers with low-risk enrollees to help the issuers with high-risk enrollees. For issuers, knowing whether they will have to pay huge sums of cash into the program, or get cash out, has been difficult.
The other program, the risk corridors program, was supposed to help Affordable Care Act exchange plans cope with exchange system startup problems, by using cash from thriving issuers to help struggling issuers. That program, which was supposed to last from 2014 through 2016, has collected only enough cash to pay 15% of the obligations for 2014. The program has not paid anything for the 2015 and 2016 obligations.
Many issuers have sued the federal government, arguing that the United States of America promised issuers the money and has to fund the program. The U.S. government has argued that the issuers simply had documents describing how the program was supposed to work, not a contract, and that the government has no obligation to make the payments.
One federal judge rejected the issuers’ arguments in April, but two other federal judges have sided with the issuers. A judge told the U.S. government’s lawyers in February that the government’s arguments are unworthy of the U.S. government.
Agent and Broker Commissions
Connecticut regulators say, in a notice posted earlier this week, that the Connecticut Life and Health Insurance Guaranty Association (CLHIGA) has had to collect about $20 million in assessments from Connecticut insurers to handle HealthyCT claim obligations.
The HealthyCT estate owes agents and brokers about $1.3 million for commissions that the insurer failed to pay from October 2016 through January 2017.
Normally, producers could not expect to get anything from the HealthyCT estate, because Connecticut state law gives paying the enrollees’ claims the highest priority, officials say.
The guaranty association has agreed, however, to let the liquidators use $760,000 of the Juris Capital payment to pay the claims of unsecured general creditors, officials say.
Most of that cash will probably go toward paying broker claims, officials say.
That means the Juris Capital payment could pay about half of the broker claims.
Connecticut Insurance Commissioner Katharine Wade and Daniel Watkins, the official in charge of the liquidation process, “understand that HealthyCT’s brokers may have continued to hope for full reimbursement of the outstanding commission claims,” officials say in the notice. “However, as the liquidation estate’s insurance claims developed in December and early 2017, it became increasingly likely that there would be an unpaid remainder due to CLHIGA , which would block any payment to lower-priority claimants unless litigation against the federal government was successful.”
Getting a final answer on the risk corridors litigation could take years, officials say.
“The federal government is contesting the claims vigorously and, as noted before, there is considerable risk involved,” officials say. “The Juris Capital transaction is being pursued because, under the circumstances, it offers the best option to reduce the existing litigation risk, freeing up at least some funds for both CLHIGA and broker claims.”
— Read Judge Certifies ACA Risk Corridors Class Action Notice on ThinkAdvisor