U.S. Supreme Courta Health insurers told the Supreme Court argued that the federal government had executed a ‘bait and switch,’ by promising payments, and then not making the payments. (Credit: Allison Bell/ALM)

The U.S. Supreme Court on Monday revived claims from insurers for billions of dollars in payments under a provision of the Affordable Care Act that established risk management protections to encourage companies to participate in the market.

The justices, ruling  8-1 against the Trump administration, said the U.S. government had an obligation to make $12 billion in payments under the so-called risk corridor program, a scheme that was designed to provide protections for insurers who claimed losses for participating in the centerpiece health exchanges set up by the ACA.

Congress established an obligation for the government to make those payments, and that obligation was not later repealed, Justice Sonia Sotomayor said for the majority on Monday.

“These holdings reflect a principle as old as the nation itself: The government should honor its obligations,” Sotomayor wrote. “Soon after ratification, Alexander Hamilton stressed this insight as a cornerstone of fiscal policy.”

The court overturned a decision by the U.S. Court of Appeals for the Federal Circuit and said the insurance companies can sue the government for damages.

Resources

  • A copy of Sotomayor’s opinion is available here.
  • An article about recent oral arguments in a Supreme Court ACA case is available here.
  • An article about the early stages of the risk corridors fight is available here.

“Insurance carriers had many reasons to participate in these new exchanges. Through the Affordable Care Act, they gained access to millions of new customers with tax credits worth ‘billions of dollars in spending each year,’” Sotomayor wrote. “But the exchanges posed some business risks, too — including a lack of ‘reliable data to estimate the cost of providing care for the expanded pool of individuals seeking coverage.’”

Justice Samuel Alito Jr. dissented, writing that the majority’s decision had “the effect of providing a massive bailout for insurance companies that took a calculated risk and lost. These companies chose to participate in an Affordable Care Act program that they thought would be profitable.”

Alito wrote that his main objection to the majority’s opinion was its creation of a private right of action for damages sought by the insurers under the federal Tucker Act. That act, he wrote, “provides a waiver of sovereign immunity and a grant of federal-court jurisdiction, but it does not create any right of action.”

At the Supreme Court, the Justice Department argued that any obligation to make risk corridor payments was scrapped when Congress “expressly prohibited” the U.S. Health and Human Services Department from continuing to make payments using certain funds.

Paul Clement of Kirkland & Ellis argued for insurers at the Supreme Court. The carriers contended that the U.S. government executed a massive “bait and switch,” promising payments under the risk corridor program but not making them.

“Like numerous other insurers, petitioners responded exactly as Congress intended, participating in the exchanges and charging lower premiums than they would have absent the government’s commitment to share some of the risk,” Clement, representing Oregon-based Moda Health Plan Inc., said in his petition in February at the Supreme Court.

Moda’s lawyers argued that “the net effect was a bait-and-switch of staggering dimensions in which the government has paid insurers $12 billion less than what was promised.”

The court’s decision in Maine Community Health Options v. United States came in four consolidated cases, including Moda Health Plan v. United States, Blue Cross and Blue Shield of North Carolina v. United States and Land of Lincoln Mutual Health Insurance v. United States.

The dispute attracted substantial friend-of-the-court briefing from health insurers across the country.

Lawyers from O’Melveny & Myers filed an amicus brief on behalf of Blue Cross Blue Shield Association, which advocates for the interests of 36 locally operated companies that provide insurance to nearly 106 million people.

“Blue Plans were disproportionately injured by the government’s bait-and-switch. Of the $12.3 billion in risk corridors obligations that the government has failed to pay, 40% — or nearly $5 billion — is owed to Blue Plans,” O’Melveny partner K. Lee Blalack II wrote in the friend-of-the-court brief.

— Read Supreme Court Will Save Most of ACA: Health Insurer Group Headon ThinkAdvisor.

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