Risk Corridors Program Update: Key Legal Actions and Decisions

Health Update

Editor’s Note: The article below provides an update on the risk corridors program (Program) created by the Patient Protection and Affordable Care Act (ACA). The Program was intended to encourage qualified health plan (QHP) issuers to set modest premiums during the early years of the exchanges. In an article in our April “Health Update,” we analyzed two cases on appeal to the Federal Circuit concerning the government’s failure to appropriate sufficient funds to reimburse QHP issuers more than $12 billion due under the Program. This article provides an update on (1) the Federal Circuit’s decisions and (2) petitions for certiorari filed at the United States Supreme Court earlier this year.

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The Risk Corridors Program

The Program started in 2014 and required QHP issuers to spend a certain portion of premium funds (target amount) on healthcare and quality improvements each benefit year. See 42 U.S.C. § 18062. QHP issuers that spent less than 97% of the target amount had to pay a portion of their gains into the Program (Collected Amounts). 42 U.S.C. § 18062(b)(2); 45 C.F.R. § 153.510(c). QHP issuers that spent more than 103% of the target amount would be reimbursed a portion of their excess losses (Risk Corridors Payment). 42 U.S.C. § 18062(b)(1); 45 C.F.R. § 153.510(b).

Through annual appropriations riders, Congress limited funding for the Risk Corridors Payments to the Collected Amounts. Risk Corridors Payments exceeding the Collected Amounts were transferred to the following year. In other words, Congress was willing to distribute the funds that were collected by the Program itself, but not more, regardless of QHP losses. By the end of the Program in 2016, more than $12 billion remained outstanding to QHPs due to inadequate Collected Amounts. The government has since refused to appropriate additional funding to cover the outstanding Risk Corridors Payments, prompting many QHP issuers to file suit.

Legal Actions Concerning the Outstanding Risk Corridors Payments

Two key cases addressing the outstanding Risk Corridors Payments are Moda Health Plan, Inc. v. U.S. and Land of Lincoln Mutual Health Insurance Company v. U.S.

In Moda Health Plan, Inc., Judge Thomas Wheeler of the Court of Federal Claims held that “the Government . . . unlawfully withheld risk corridors payments from Moda, and is therefore liable. The Court [found] that the ACA requires annual payments to insurers and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments under the ACA. In the alternative, the Court [found] that the ACA constituted an offer for a unilateral contract, and Moda accepted this offer by offering qualified health plans on the Health Benefit Exchanges.” Moda Health Plan, Inc. v. U.S., 130 Fed. Cl. 436, 441 (2017). The court explained its reasoning: “Government made a promise in the risk corridors program that it has yet to fulfill. [T]he Court [directed] the Government to fulfill that promise. After all, to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.” Id. at 466 (quoting Brandt v. Hickel, 427 F.2d 53, 57 (1970)).

In another case in the Court of Federal Claims, the court reached a different result. In Land of Lincoln Mutual Health Insurance Company, Judge Charles Lettow held that “HHS’s decision not to make full payments annually cannot be considered contrary to law.” Land of Lincoln Mut. Health Ins. Co. v. U.S., 129 Fed. Cl. 81, 108 (2016). The court found that the ACA was “ambiguous in terms of the ‘payments in’ and ‘payments out’ arrangement for risk-corridors payments because it does not contain an express authorization for appropriations to make up any shortfall in the ‘payments in’ to cover all of the ‘payments out’ that may be due. And, it does not explicitly require ‘payments out’ to be made on an annual basis, whether in full or not.” Id. at 106. Because of these ambiguities, the court deferred to “HHS’s interpretation [of the ACA, which] was reflected in its final rule on May 27, 2014, [where] it stated that it intended to administer risk corridors in a budget neutral way over the three-year life of the program, rather than annually.” Id. (internal quotations omitted). The court also found there was no contract between Land of Lincoln Mutual Health and the government concerning the Program. Id. at 108-113.

Both cases were appealed to the Federal Circuit.

The Federal Circuit’s Decisions

On June 14, 2018, the Federal Circuit ruled 2-1 in favor of the government, reversing Moda Health Plan, Inc. and affirming Land of Lincoln Mutual Health Insurance Company.

In Moda Health Plan, Inc., the court held “that Moda . . . failed to state a viable claim for additional payments under the risk corridors program under either a statutory or contract theory.” Moda Health Plan, Inc. v. U.S., 892 F.3d 1311, 1331 (2018). The court agreed with the government that “the riders in the appropriations bills for FY 2015 and FY 2016 repealed or suspended its obligation to make payments out in an aggregate amount exceeding payments in.” Id. at 1322. “Although section 1342 obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments . . . Congress suspended the government’s obligation in each year of the program through clear intent manifested in appropriations riders.” Id. at 1330–31. The court also held that “the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments.” Id.

In Land of Lincoln Mutual Health Insurance Company, the court adopted its rationale in Moda Health Plan, Inc., holding that “the statutory and contract claims of appellant Land of Lincoln Mutual Health fail.” Land of Lincoln Mut. Health Ins. Co. v. U.S., 892 F.3d 1184, 1185–86 (2018).

On July 30, 2018, both Moda and Land of Lincoln Mutual Health filed petitions for rehearing en banc highlighting Circuit Judge Pauline Newman’s dissent in Moda Health Plan, Inc., which stressed that “[t]he government’s ability to benefit from participation of private enterprise depends on the government’s reputation as a fair partner. By holding that the government can avoid its obligations after they have been incurred, by declining to appropriate funds to pay the bill and by dismissing the availability of judicial recourse, this court undermines the reliability of dealings with the government.” Moda Health Plan, Inc., 892 F.3d at 1340. On November 6, 2018, the Federal Circuit denied the petitions.

Petitions for Certiorari Filed at the United States Supreme Court

On February 4, 2019, Moda (jointly with Blue Cross and Blue Shield of North Carolina) and Land of Lincoln Mutual Health filed petitions for certiorari to the Supreme Court. The issue boils down to whether Congress can use appropriations to evade statutory payment obligations for incurred losses. The petitioners raise two main arguments for Supreme Court review.

First, the Federal Circuit’s decisions clash with clear precedent. By finding an implied repeal based on the legislative history of appropriations riders, the majority departed from precedent disfavoring implied repeals of substantive law, especially where the implied repeals arise from appropriations riders. Moda Petition for Writ of Certiorari (Moda Petition) p. 17. “To state the obvious, legislative history cannot provide the clear intention of Congress as expressed in the statutes that is necessary to demonstrate an implied repeal.” Id. at 23 (emphasis original) (internal quotations omitted). “The majority allowed ambiguous legislative history to do work that, under this Court’s precedents, only clear legislative text can accomplish.” Id. p. 22.

Second, Petitioners argue review is warranted “because [the Federal Circuit] interprets legislative history in an appropriations rider to retroactively deprive Petitioners and other insurers of vested statutory entitlements after they performed the services solicited by the Government.” Land of Lincoln Mutual Health Petition for Writ of Certiorari (Land of Lincoln Mutual Health Petition) p. 18 (emphases original). “Indeed, it is not at all clear that the government could retroactively disavow an obligation already incurred that had occasioned significant reliance interests without violating the Due Process Clause, the Takings Clause, or both.” Moda Petition p. 23.

Petitioners end their briefs by highlighting the cases’ impact on the government and those with whom it does business. “At the most basic level, it is a question of the integrity of government. . . . If the Federal Circuit’s decision stands, it will not only perpetuate the existing uncertainty in the health insurance markets, but extend that uncertainty to all areas in which the government seeks to partner with private entities.” Moda Petition p. 35 (internal quotations omitted); see also Land of Lincoln Mutual Health Petition p. 34.

Conclusion

The government is due to respond this month, after which the petitioners will have one last chance to make their case. Numerous stakeholders—including the Blue Cross Blue Shield Association, the National Association of Insurance Commissioners and state attorneys general—have filed amicus briefs urging Supreme Court review. “Unless reversed, the decision[s] provide[] a dangerous roadmap for the government to promise boldly and clearly, renege quietly and ambiguously, and escape all political and financial accountability for doing so.” Id. at 33.