ACA Risk Corridors Update: Trump Administration Releases 2016 Amounts, Paving the Way for Litigation Over Amounts Owed

On November 13, 2017, the Centers for Medicare & Medicaid Services (CMS) announced its Risk Corridors payment and charge amounts for the 2016 benefit year. This event is significant in that it both acknowledges and quantifies the amounts owed to Qualified Health Plan (QHP) issuers for the last year of the three-year Risk Corridors program.

The Risk Corridors program was established under Section 1342 of the Affordable Care Act (ACA). Pursuant to this program, Congress recognized that QHP issuers would need time to figure out how to price coverage accurately for customers in the ACA’s new marketplaces. This was in part because the ACA’s individual subsidies allowed several million previously uninsured people to purchase coverage, and in part because QHP issuers were required to issue standardized coverage to every applicant, no matter their risk profile. As a result, QHP issuers were being asked to participate in a marketplace under a new set of rules they had not yet experienced.

As one mechanism to provide QHP issuers some certainty in light of these rules, the ACA implemented a Risk Corridors program for the initial three years of the ACA marketplaces (2014 to 2016). QHP issuers who significantly underpriced — who essentially charged less in premiums than they paid out in benefits — would have a portion of their losses reimbursed by the government. Those who overpriced would pay a portion of their profits to the government. Section 1342 states unequivocally that the Department of Health and Human Services (HHS) “shall pay” the amounts owed and, critically, the rule does not link those payments with the amounts that profitable issuers — those who overpriced — had to pay in.

Nevertheless, after Congress sought to limit the funding sources available for these payments, HHS announced that it would attempt to implement the Risk Corridors program in a “budget neutral” manner. To the extent that the proceeds HHS received as “payments in” were insufficient to cover the amounts owed, HHS would only pay a pro rata portion of those amounts. For the 2014 and 2015 benefit years, the proceeds fell well short of the amounts owed and in fact did not even cover the 2014 benefit year. Still, HHS maintained that these amounts would continue to be paid off on a pro rata basis as the program continued, and 2015 payments would start once 2014 was paid off. 

Predictably, in 2016, QHP issuers started filing lawsuits in the U.S. Court of Federal Claims seeking the additional amounts owed. After the parties briefed the issues on the merits, the judges considering these lawsuits issued several divergent opinions: some judges agreed with the QHP issuers that the amounts were owed, some did not. We covered some of these decisions in our May 3 update.

Other judges, however, took a third approach. In particular, Judge Griggsby found that — because HHS was taking a broad view in treating all three years together — the Risk Corridors payments were not “presently due” until all three years of the program were complete and the full payments in and payments out were assessed. It has taken CMS the bulk of the calendar year following a given benefit year to make this determination, so under this logic the QHP issuers who were asserting claims for 2016 were jumping the gun.

That is the importance of CMS’s November 13 announcement. Now, HHS has taken a position on the amounts it believes QHP issuers must pay, or be paid, for the final year of the Risk Corridors program. Absent any corrections, at least the accounting for this program is now complete. And CMS’s announcement makes obvious that HHS is still woefully short on these payments, stating that “HHS will use 2016 benefit year Risk Corridors collections to make additional payments toward 2014 benefit year payment balances.” 

CMS’s announcement should therefore eliminate one main objection that HHS has used — sometimes successfully — to defend against Risk Corridors claims. As the issues presented in these lawsuits have now been consolidated on appeal before the U.S. Court of Appeals for the Federal Circuit, the announcement enhances the chances that the appeals court will reach a decision on the merits. Although the briefing for the appeal is now compete, the parties are still waiting for a date for oral argument, and the court is not likely to issue a decision until well into next year.

So where does this leave QHP issuers with viable Risk Corridors claims? 

Given that 2016 is the final year of the Risk Corridors program, the charge amounts for this year constitute the last income HHS will receive under the program. Estimates show that, even with the 2016 proceeds, HHS is nowhere close to paying off even the 2014 amounts owed, putting the overall shortfall for the three-year program at over $12 billion. Accordingly, unless HHS issues payments due from another funding source (or Congress passes an express appropriation), QHP issuers with viable claims will have little choice but to initiate litigation against HHS. 

Federal law provides a vehicle for this through the Tucker Act, under which private parties can hold the government liable for money damages arising from a failure to meet its statutory and contractual obligations. Further, through the Judgment Fund, Congress created a permanent appropriation to assure payment of statutory and contractual obligations of the government that are obtained through the Tucker Act.

With 2016 numbers now in place, there is little reason for QHP issuers to wait longer to litigate valid claims. As a result, we can expect to see a number of additional Risk Corridors lawsuits filed in the upcoming weeks.