Federal Circuit Holds U.S. Liable to Health Insurers for ACA Cost-Sharing Reductions

Background

Cost-Sharing Reduction (CSR) Payments Take Effect. Under Section 1402, the Affordable Care Act (ACA) implements a plan for reducing the amount of out-of-pocket costs, such as deductibles and co-payments, that lower-income insureds must pay under their ACA plans. Section 1402 places the burden of these CSRs on the government by providing that the government (through the secretary of Health and Human Services (HHS)) “shall make periodic and timely payments” to insurers, which the insurers must then provide to eligible insureds, based on their household income.

The Government Stops Making CSR Payments. The CSR program was implemented along with the ACA exchanges in January 2014, and for the next 45 months – until September 2017 – the government made monthly CSR payments to the health insurers, who in turn paid the CSRs to their eligible insureds. In October 2017, however, the government stopped making these payments, and has not made them since. But health insurers’ obligation to pay CSRs to their eligible insureds did not stop. So, since October 2017, health insurers have continued to pay CSRs without government reimbursement.

The Court of Federal Claims Holds the Government Liable for CSR Payments in Full. Several insurers filed suit in the Court of Federal Claims (CFC), seeking to hold the government accountable for these lost CSR payments. These insurers sued under the Tucker Act, which allows parties to sue in the CFC to hold the government liable for non-payment under a money-mandating statute.

The government vigorously disputed these claims, arguing that 1) HHS had no authority to make CSR payments to insurers because Congress never appropriated the funds to do so; 2) that neither Section 1402 nor the Tucker Act allowed insurers to enforce these payment requirements in the CFC; and 3) that insurers suffered no damages, even in 2017, because beginning in 2018 they were able to raise their premiums and obtain additional tax credits under a separate program in Section 1401 (sometimes referred to as “silver-loading”), which allows eligible insureds to offset their premium expenses through tax credits.

In several decisions from several judges, the CFC rejected all the government’s arguments. The court held that Section 1402 is a money-mandating statute enforceable in the CFC under the Tucker Act, and that the mere lack of an appropriation does not discharge the government’s liability to make the payments. The court further found that, under the clear statutory language, the government had to make the payments, even if insurers were able to offset their losses through increased tax credits. In essence, the statute meant what it said, and the government had to live up to its obligation. Community Health Choice obtained a judgment for over $70 million for unpaid CSRs.

The Federal Circuit Weighs In

In two separate opinions issued late last week, the Federal Circuit agreed with health insurers that the government did in fact have an obligation to make CSR payments, but remanded cases involving 2018 CSRs for further fact findings on damages.

Initially, in Sanford Health Plan v. United States, the Federal Circuit affirmed that Section 1402 was a money-mandating statute enforceable in the CFC, and that the government was liable under Section 1402 to make CSR payments to insurers. It based this conclusion squarely on the Supreme Court’s recent decision in Maine Community Health Options v. United States, 590 U.S. __ (2020), which dealt with similar statutory payment language with respect to the ACA’s “risk corridors” program.

The Federal Circuit held that “Maine Community makes clear that the cost-sharing-reduction reimbursement provision imposes an unambiguous obligation on the government to pay money and that the obligation is enforceable through a damages action in the Court of Federal Claims under the Tucker Act.”

In the more hotly contested case of Community Health Choice v. United States, the Federal Circuit confirmed its holding in Sanford that the government was liable for CSR payments, and further made clear that the government “is not entitled to a reduction in damages with respect to cost-sharing reductions not paid in 2017.”

For 2018, the Court departed from the CFC’s holdings and instead adopted a novel approach under which the government is entitled to have damages reduced to the extent an insurer was able to mitigate losses through increased premiums that led to increased tax credit payments under another provision of the ACA. It concluded that the contract-law based doctrine of mitigation should be applied by analogy to the government’s statutory obligation, even though the statutory CSR obligation on its face was not tied to the amount of premiums charged by an insurer. Under this holding, the government may be entitled to some reduction in damages for 2018 to the extent that insurers were able to offset CSR payments through the separate tax credit program under Section 1401. The Court recognized that calculating these amounts will be “fact intensive.” It remanded the case with instructions that the CFC make factual findings and legal rulings on the damages issue as framed in the opinion.

In sum, the Federal Circuit’s decision hands insurers a major victory on two fronts: first, that the government is liable for non-payment of CSRs under Section 1402; and second, that insurers are entitled to the full amount of unpaid CSRs for 2017. For those insurers asserting CSR claims for 2018 or later, additional litigation will be required via further appeals and/or trial in the CFC to determine the extent of damages. Both the government and the insurers have the right to seek review of the Federal Circuit’s decision by the full Federal Circuit or the U.S. Supreme Court.

Faegre Drinker Biddle & Reath LLP represents Plaintiff-Appellee Community Health Choice, Inc. in this litigation.