Health Insurers Win Important Ruling on Payment of ACA Cost-Sharing Reductions (CSR)

A federal judge has ruled that health insurers under the Affordable Care Act are entitled to unpaid cost-sharing reduction (CSR) payments from the government. Insurers sued following the Trump administration’s October 2017 decision to stop CSR payments to insurers, who were nonetheless still obligated to provide CSRs to their members. This effectively shifted the burden of providing this health benefit from the government to the health insurers.

On February 15, 2019, Judge Sweeney of the U.S. Court of Federal Claims held that ACA Section 1402 “sets forth an unambiguous mandate” that the government “shall make” CSR payments to insurers. The Court further rejected the government’s argument that Congress’ failure to appropriate money for these payments in any way extinguished the obligation. The Court relied in part on the Federal Circuit’s recent decision in Moda Health Plan, Inc. v. United States, which held that, while ACA Section 1342 created a mandatory obligation to make Risk Corridors payments, later appropriations riders restricting the sources of funds for these payments effectively repealed or suspended the government’s obligation. (The insurers have since petitioned the U.S. Supreme Court to review this decision.)

Because Congress passed no such riders relating to CSR payments, the Court held, the original obligation to pay remains intact. The Court likewise found that the statutory obligation created an “implied-in-fact” contract between the government and insurers, further obligating the government to make the payments.

Critical for insurers, the Court did not limit its holding to the missed payments during the last three months of 2017. Rather, the Court rejected the government’s argument that 2018 losses should be offset by rate increases through “silver loading,” finding that the statutory obligation to make CSR payments existed irrespective of where or how insurers set their rates. Thus, insurers who did not file claims because they had little or no 2017 CSR losses should assess whether a claim now make sense due to losses incurred in 2018.

Judge Sweeney’s opinions add to three opinions by two other judges on the Court of Federal Claims – Judge Kaplan and Judge Wheeler – also finding for the insurers on similar grounds. While appeals are already underway, the initial unanimous outcome of these decisions bodes well for insurers. Insurers should note, however, that the government continues to contend that Congress has not appropriated funds to make CSR payments. As a result, absent additional congressional action, the only way insurers can obtain payment for their ACA cost-sharing reductions is to initiate an action against the government in the Court of Federal Claims, whose judgments are payable through the judgment fund.

Faegre Baker Daniels represented Community Health Choice, Inc. in this litigation.