A federal appeals court ruled this week that the federal government must pay a shuttered Colorado health insurance cooperative the $24.5 million in reinsurance payments it owes rather than subtracting the debt from the insurer's larger balance with the government.
The U.S. Court of Appeals for the Federal Circuit's May 17 ruling means that HHS can't "leapfrog" other creditors in Colorado HealthOP's liquidation and must instead pay its debt in full and make a claim against the insurer's estate as a creditor to attempt to collect the balance.
"Put simply, the government argues its ACA debts take priority over all other creditors' claims during Colorado insolvency proceedings," Circuit Judge Kimberly Moore wrote. "We do not agree."
A state court ordered Colorado HealthOP, a not-for-profit insurer set up under the Affordable Care Act, into liquidation in 2016, just three years after its launch. At the time, the government owed the insurer $24.5 million for reinsurance debts under a provision of the Affordable Care Act. On the other hand, the co-op owed HHS about $42 million worth of risk adjustment payments under a different provision of the ACA. A claims court ordered the government to pay. The May 17 ruling affirms the earlier ruling.
Following the co-op's insolvency, HHS requested that it offset the co-op's $42 million risk adjustment debt against the government's smaller reinsurance debt. After various proceedings in state court, the co-op's liquidator, Michael Conway, sued HHS in claims court, seeking direct payment of HHS' reinsurance debt. Conway, who serves as Colorado's Insurance Commissioner, moved for summary judgment before the government answered. The government then opposed and filed a countermotion to dismiss the case.
Court records show the claims court noted that federal law, not state, controlled whether HHS could offset the debt. The problem, then, was that existing federal law did not address offset during state-law insolvency proceedings. Interpreting Colorado's offset provision, the claims court held that the government was not entitled to offset and ruled in Conway's favor. HHS appealed, prompting the May 17 ruling.
Conway is represented in the case by attorneys with Crowell & Moring, who did not return a request for comment Wednesday. The Justice Department declined to comment.
Colorado regulators forced Colorado HealthOP to stop issuing new policies in 2015 because of its precarious financial situation. At the time, the insurer was the largest company on the state's health insurance exchange, covering more than 80,000 people or about 40% of the exchange market. However, the co-op posted a $23 million net loss in 2014 after borrowing $72 million.
Colorado HealthOP was the seventh health insurance co-op to collapse in 2015. All told, 20 of the original 23 insurance exchanges created under the ACA have closed, according to the National Association of Insurance Commissioners.