Battle for billions of dollars in risk-corridor payments not over yet

Health insurers' battle over billions of dollars in unpaid risk-corridor payments is far from over, despite a federal appeals court ruling on Thursday that the U.S. government does not have to open its wallet.

The U.S. Court of Appeals for the Federal Circuit sided with the federal government, ruling 2-to-1 that it doesn't owe health insurers $12.3 billion in payments under a program meant to offset losses during the early years of the Affordable Care Act exchanges. The ruling is a blow to insurers who have filed three dozen lawsuits over the risk-corridor program, including a class action involving 150 insurers.

Legal and healthcare experts were surprised by the court's ruling because they believed the insurers had a strong argument for the risk-corridor payments. Some worried the ruling would set a precedent that the federal government has no obligation to follow through on its promises.

"It's a textbook kind of definition of bait-and-switch and has fundamental ramifications for any number of federal programs where people are promised something and it induces behavior," said Nicole Elliot, a tax attorney with law firm Holland & Knight who was formerly an executive at the U.S. Treasury and the Internal Revenue Service.

The federal appeals court's dissenting opinion by Judge Pauline Newman similarly stated that the majority's decision "undermines the reliability of dealings with the government."

In past years, many health insurers, especially the co-ops created under the ACA, shut their doors because they were saddled with sick exchange members and didn't receive the risk-corridor payments they believe they were owed to offset those members' costs.

Still, some disappointed insurers indicated they aren't giving up on their quest to secure billions in funds.

Portland, Ore.-based insurer Moda Health — one of the subjects of Thursday's ruling — said it would appeal the decision. "We continue to believe, as our trial court did, that the government's obligation to us is clearly stated in the law and we will continue to pursue our claim on appeal," Moda CEO Robert Gootee said in a statement.

The other insurer involved in the appeals court case was the shuttered Illinois co-op Land of Lincoln Health. The insurers could request a hearing in front of all 12 Federal Circuit judges or ask the Supreme Court to take the case.

Until then, the dozens of other risk-corridor cases that were generally stayed pending the outcome of the federal appeals court ruling remain in limbo.

The three Federal Circuit judges who heard the Moda and Land of Lincoln cases are Republican appointees. But the majority of the 12 judges who could hear the case en banc should the insurers' go that route are Democratic appointees.

It's unclear if that would improve insurers' chances because the case isn't a hugely political one, according to Timothy Jost, a health law scholar and ACA expert. The outcome is a big deal for insurers and their investors, but most consumers won't be affected. Many insurers had already raised premiums to account for the missing risk-corridor payments. Others, like Humana in December 2016, wrote off the funds, assuming the federal government was unlikely to make the payments.

The ACA's temporary risk-corridor program was intended to compensate health plans for providing coverage to people in the individual and small-group markets during the early years when there was a lot of uncertainty surrounding who would enroll in the exchanges. It essentially limited how much money an insurer could lose or gain on the exchanges.

But Republicans in Congress passed appropriations riders making the program budget-neutral, meaning the HHS could only make risk-corridor payments from the funds it collected from insurers as part of the program. That led to a massive shortfall.

The Federal Circuit's majority opinion acknowledged that a section of the ACA required the government to pay the full amount of risk-corridor payments, but then said Congress effectively wiped out that obligation with its appropriations riders.

Judge Newman's dissenting opinion noted the federal government argued before the lower court that it had until the end of 2017 to pay Moda in full, then changed its tune and said it didn't owe the insurer anything. The appropriations riders cannot retroactively get rid of "obligations already incurred," she wrote

Jost said the first appropriations rider making the risk-corridor program budget-neutral was passed after the insurers had already sold plans on the exchanges for a year and set 2015 rates with the assumption that full risk-corridor payments would be made.

"The point did come up in oral argument, and it seemed to be an important one. That's a significant point that the dissent noted but the majority didn't," Jost said.