A shuttered Oregon co-op health plan filed a class-action lawsuit against the federal government Wednesday, saying it and other insurers are owed as much as $5 billion in risk corridor payments.
Health Republic Insurance Company of Oregon alleges that the government had no right to reduce risk corridor payments to qualified health plans operating on the federal exchange. The money could have helped it and others stay open, said Stephen Swedlow, an attorney representing the insurer and a partner at Quinn Emanuel Urquhart & Sullivan.
So far, 12 of 23 co-ops created under the Affordable Care Act to offer affordable, high quality health plans have closed. A number of non-co-op insurers offering plans on the exchange have struggled as well.
Under the Affordable Care Act's risk corridor program, insurers offering plans on the federal exchange get money from the government if their losses exceed a certain amount, and they must make payments to the government if their profits exceed a certain amount. The program is designed to limit risks for insurers during these early years of the exchange.
But Congress passed spending bills in 2015 and 2016 that prevented CMS and HHS from paying plans their full risk corridor payments. For 2014, plans requested $2.87 billion in payments but paid only $362 million into the program.
“Some companies were unable to remedy the cash flow and/or reserve shortfalls, and, as a consequence, went out of business,” the co-op says in the lawsuit. “This, in turn, forced hundreds of thousands of Americans to switch to other carriers, often with less attractive pricing and/or different provider networks.”
The Justice Department declined to comment on the lawsuit Thursday.
But the CMS released a memo in November saying that it wants to make sure insurers get the money they're owed. According to the memo, HHS “will explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments.”
The lawsuit is believed to be the first of its kind filed by an insurer seeking to get full risk corridor payments.
Swedlow hopes the lawsuit will allow co-ops to continue functioning.
He argues that the lack of large enough appropriations for the risk corridor program didn't change the fact that statute requires the government to make those payments.
“If the government takes on an obligation through a statute or contract, the government shouldn't then be able to pass a bill saying we don't have to pay our bill because then no one would enter into business with the government,” Swedlow said.
Those familiar with the risk corridor program say the money could have made a big difference to co-ops and other insurers.
“The federal government should be held responsible to make good on its promise, and there's also no question that the failure to pay the risk corridor money was a substantial factor in the closing of a number of co-ops,” said John Morrison, founder and past president of the National Alliance of State Health CO-OPs.
Morrison, who is now a partner at Morrison Sherwood Wilson Deola, said he hopes the case results in some of the closed co-ops being able to re-open.
Kelly Crowe, current CEO of the alliance, said in a statement that, “The marketplace was thrown into chaos when insurers received only 12.6% of expected risk corridor payments, with no clear understanding of how this promised money would be recouped in future years. We hope Health Republic Insurance of Oregon's lawsuit forces the federal government to address the concerns of all insurers—not just CO-OPs—about the efficacy and future of the marketplaces.”
Not everyone, however, is confident the insurer will prevail.
Cynthia Borrelli, a principal at Bressler Amery Ross who represents insurers, said the spending bills that led to the reduced payments effectively amended the law, and Congress can always amend laws.
“They cut the companies off at the knees by not appropriating, but I still think it was a lawful use of their appropriation authority,” Borrelli said.
She said the lawsuit may serve to further undercut Americans' confidence in the ACA. And if the insurer wins, that could make it more difficult for Congress to amend the ACA in the future, which could also lead to problems, she said.
“I think it's just another blow to the statute and another blow to the confidence the American people have in the government in terms of its ability to reform healthcare in the United States,” Borrelli said.
