The state of the ACA's risk corridors

The Obama administration is now on the hook for more than $8 billion in payments to cover insurer losses on the health insurance exchanges, but industry experts are growing doubtful the full tab will ever be paid.

At the same time, while Republican lawmakers are committed to sewing up the federal wallet to keep the current administration from paying insurers what they call a “bailout,” they don't want to see the insurance markets collapse under their watch. Any replacement plan for the Affordable Care Act—which President-elect Donald Trump and Republicans in Congress have vowed to repeal and replace—would require private insurers to jump on board. And alienating them by refusing to pay promised funds would be bad for business, experts say.

The federal government owes insurers roughly $8.3 billion from the ACA's risk-corridor program to offset losses on the exchanges from 2014 and 2015. Insurers are owed more than $5.8 billion in net risk-corridor payments for 2015 alone, according to the latest CMS data.

The 2015 total comes on top of the $2.5 billion shortfall to cover insurers' 2014 losses. All told, the federal government is barely making a dent in the mounting requests for payments, largely because Congress required the program to be budget-neutral.

The risk-corridor program was established under the ACA to help offset insurer losses in the first three years of the insurance exchanges. The program, which expires at the end of the year, was designed to discourage insurers from hiking premiums because of uncertainty in who would enroll in their plans. It works by requiring profitable insurers to pay funds into the program, while plans with higher medical claims receive money. A similar risk-corridor program exists in Medicare Part D, which was created by Republican President George W. Bush.

But the ACA's program hasn't worked as planned. The gap between what some insurers are paying in and what others are requesting is widening. Congress in 2014 passed a provision in the 2015 federal budget requiring risk corridors to be revenue-neutral, so the CMS can only dole out what it takes in. In October 2015, the CMS said it would pay just 12.6% of the risk-corridor requests for 2014. The rest of the payments would be paid from 2015 and 2016 collections.

Several insurers are suing to recoup overdue payments. While they have strong cases, a favorable court decision may not be enough to pry open the federal government's wallet, said Nicholas Bagley, a law professor at the University of Michigan.

Republican lawmakers have floated bills that would prohibit the CMS from using federal funds, particularly the Judgment Fund, to settle the lawsuits. If the bill, titled the HHS Slush Fund Elimination Act, is passed, that fund would be off-limits, and “insurers are out of luck,” Bagley said.

“Congress' most important constitutional authority is the power of the purse, and no court will abrogate that constitutional prerogative,” he said.

Some health plans aren't owed a dime since they had healthier ACA enrollees, but others are waiting for massive paychecks.

Blue Cross and Blue Shield of Texas, for instance, has racked up the biggest tally in risk-corridor payments at $916.8 million for 2014 and 2015, according to a Modern Healthcare analysis of the CMS data. The CMS said it will pay $9.8 million toward the health plan's outstanding 2014 request from money collected for the 2015 benefit year.

Other Blues companies also are high on the government's IOU list: Blue Cross and Blue Shield of Illinois is owed $488.7 million for the first two years, while the CMS expects to pay $6.5 million toward its 2014 requests. Health Care Service Corp., headquartered in Chicago, owns the Illinois and Texas Blues.

Across all plans affiliated with the Blue Cross and Blue Shield Association, risk-corridor payments total $3.6 billion after charges, according to the analysis. Nearly all the Blues plans participated in the ACA's exchanges in different states, and in some places, Blues plans were the only ones available.

It's likely that many previously uninsured people flocked to Blues plans because of their trusted brand, and as a result, they ended up with higher claims than they expected, said Timothy Jost, a law professor at Washington and Lee University.

National for-profit insurers Aetna, Humana and UnitedHealth Group endured major losses from the plans they sold through the insurance exchanges, leading all three to drastically scale back their participation. They are owed varying levels from risk corridors.

Across all Aetna-affiliated plans, including Coventry and Aetna's joint venture with Inova Health, the CMS data shows the insurer is owed $203.8 million for 2014 and 2015 after Aetna pays what it owes under the program. The CMS expects to pay $4.1 million toward outstanding 2014 requests. Hartford, Conn.-based Aetna estimates it will be owed $377 million in payments for the three years of the program, according to a recent quarterly filing with the Securities and Exchange Commission.

Risk-corridor payments for health plans owned by Minnetonka, Minn.-based UnitedHealth come in at $184.5 million for 2014 and 2015. The CMS said it will pay just $5,000 toward overdue 2014 payments in addition to what it has already paid the insurer.

After charges, Humana plans are owed $449.3 million for the first two years. The Louisville, Ky.-based insurer said it has collected about $30 million of that so far. The CMS expects to pay $8.1 million on top of that.

Cigna Corp., which canceled a planned expansion to new exchange markets for 2016, is owed $88.7 million in risk-corridor payments for their first two years, according to Modern Healthcare's analysis. In its most recent quarterly SEC filing, Cigna said it expected to collect $124 million in risk-corridor payments over the three year program. Cigna spokesman Joe Mondy said the insurer doesn't provide a breakout of the details and would not comment on Modern Healthcare's calculation.

Meanwhile, Medicaid managed-care insurers Centene Corp. and Molina Healthcare have fared better on the exchanges than other insurers, but they are still owed millions in risk-corridor payments. For the first two years of the program, Molina plans are due to receive $46 million in payments, and Centene plans are owed $387 million after they pay what they owe.

Several insurers, including failed insurance co-ops established under the ACA, have sued to recover missing risk-corridor payments. Many of the lawsuits allege the federal government breached its contract to make good on the funds they promised, but a recent decision by a federal judge suggests the cases may not go the way insurers are hoping.

In that case, a judge in the U.S. Court of Federal Claims dismissed the case brought by failed Illinois co-op Land of Lincoln Health, which sued to recoup $72.8 million in risk-corridor payments. The CMS has paid the Illinois co-op a little more than $550,000 and expects to pay just $150,000 more from 2015 collections under the program. Siding with the government, the judge said the CMS was not contractually obligated to pay up.

In another lawsuit brought by Portland, Ore.-based insurer Moda Health, a federal judge in the same court rejected the Justice Department's request to freeze the case, finding that Moda is entitled to know whether it will recover overdue payments or else its business will suffer. Moda sued in June for $191 million in payments owed for 2014 and 2015. The CMS has paid $11.3 million so far and expects to pay $2.9 million on top of that from the 2015 collections.

While Republican lawmakers seem committed to undoing the risk-corridor program, and the ACA more broadly, there's an argument the payments will eventually be made, perhaps as a bridge until the ACA is replaced.

“There's been a little noise that some Republicans may be reluctant to have the health insurance markets collapse under their watch, until they can get together on what they can replace it with,” Jost said. “The obvious way to keep the markets from collapsing is to pay out the risk corridors.”

Because the exchanges are a small part of the health insurance market, most companies will be able to stomach the risk-corridor shortfalls. Others will have a tougher time. Many of the now-failed co-ops, for example, closed because of missing payment.

The shuttered New York-based co-op Health Republic is owed $350 million in payments for 2015 alone. Iowa's now-closed CoOportunity Health is owed $157 million for the first two years.