US Court: Payers Are Responsible for Risk Corridor Program Costs

June 19, 2018 - Federal judges in the US Federal Circuit Court of Appeals have issued an opinion stating that healthcare payers, and not HHS, are responsible for the costs of the ACA’s risk corridor program.

Chief Judge Sharon Prost filed the majority opinion on Moda Health’s claim that HHS is contractually obligated to reimburse risk corridor payments in full. The judges stated that there was no official contractual agreement between HHS and health insurers for the timing of risk corridor payments, which makes Moda’s claim to the payments invalid.

“Although section 1342 [of the ACA] obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments, we hold that Congress suspended the government’s obligation in each year of the program through clear intent manifested in appropriations riders,” Prost said.

“We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments.”

The judges also contended that the risk corridor payments were not budget-neutral, and that risk corridor payments were not obligatory, since the government did not provide budgetary authority to HHS to administer the payments.

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“Here, the obligation is created by the statute itself, not by the agency,” the judges said citing legal arguments from a case titled United States v. Langston. “The government cites no authority for its contention that a statutory obligation cannot exist absent budget authority. Such a rule would be inconsistent with Langston, where the obligation existed independent of any budget authority and independent of a sufficient appropriation to meet the obligation.”

The judges also found that HHS already paid a satisfactory sum under the risk corridor program and has no requirement to pay out the full amount to Moda Health.

“We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments. Accordingly, we hold that Moda has failed to state a viable claim for additional payments under the risk corridors program under either a statutory or contract theory,” the judges added.

US Circuit Judge Pauline Newman filed the dissenting opinion, arguing that there is a contractual agreement between Moda Health and HHS and that the payer is entitled to 100 percent of its claims under the risk corridor program.

She stated that the federal government’s decision to not pay risk corridor compensation would damage relations between private payers and federal entities.

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“The government’s ability to benefit from participation of private enterprise depends on the government’s reputation as a fair partner,” Newman wrote. “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.”

Newman’s concerns are shared by healthcare policy experts at the Wharton School at the University of Pennsylvania, who believe the government’s significant amount in unpaid risk corridor payments could impact future federal-private collaboration.

The payer industry claims $12 billion in unpaid risk corridor payments. Insurers argue that the government still needs to reimburse payers operating above an 80 percent medical loss ratio (MLR) threshold.

Under the risk corridor program, if a payer’s MLR was 85 percent, then HHS would compensate payers for the extra five percent. The federal government refused to pay insurers that spent over the risk corridor threshold over a four-year period, which compounded into billions in unpaid payments.

Government policies that don’t adequately reimburse payers for risk corridor payments may create long-lasting impacts on public-private payer collaboration and participation in the ACA’s health plan exchanges, the experts stressed.

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“If insurers feel that the government won’t make good on promises that were in the ACA, what will that do to their participation in the exchanges in the future?” asked Robert Field, a healthcare policy expert at the Drexel University Dornsife School of Public Health. “Are [the insurers] going to get spooked, or are they going to decide that this is one more straw on the camel that might break its back and decide that these exchanges aren’t worth it?”

The government’s decision to not pay risk corridor funds to payers may create additional instability in health plan markets and contribute to rising premium rates.

Payers are likely to raise premiums to address financial challenges related to a losses of the cost-sharing reductions, individual mandate, and other policies that normally subsidize payers for healthcare costs.

“The failure to fund cost sharing reductions has not contributed to the stability of the market and has created much more pressure on premiums, especially for those not eligible for subsidies,” said Scott Harrington, Chair of the Healthcare Management Department at the Wharton School.

“If the court decision goes against the insurers, it undermines the confidence that private players have about legislation when it’s passed.”