A specialized investor that bet health insurers would prevail in a challenge over unpaid Affordable Care Act funds is now reaping rewards from its gamble.
Last week, Chicago-based litigation finance firm Juris Capital collected $35.4 million in legal winnings from the Connecticut insurance department following the U.S. Supreme Court's ruling earlier this year that the federal government owed health insurers billions of dollars in outstanding payments under the now-concluded ACA risk-corridor program.
That comes after Juris collected $64.9 million in litigation proceeds from the Illinois Department of Insurance in August.
The payouts are the result of deals that the state insurance departments struck up with Juris several years ago after not-for-profit health insurers in their states were forced to shut down, in large part because the federal government neglected to pay them promised risk-corridor funds.
The insurers — Illinois-based Land of Lincoln and Connecticut-based HealthyCT — sued the federal government in 2016 and 2017, respectively, for those unpaid funds alongside more than 100 other health plans. Juris exchanged cash for a stake in their potential legal winnings.
Though the insurers ultimately won their cases, Juris was the biggest beneficiary of the litigation, netting about $60 million from those two challenges when taking into account its initial investments. Land of Lincoln and HealthyCT ended up with less.
Still, a spokesman for the Connecticut insurance department maintained that the deal, in which Juris paid HealthyCT $10.5 million for 100% of its future legal rewards, was a good one.
"The Juris transaction allowed the liquidator to de-risk a potential adverse outcome in the risk corridors litigation while providing significant assets to repay all but one of the estate's creditors," the spokesman said in an email.
HealthyCT's estate likely won't be able to repay the federal government for the start-up and solvency loans the federal government provided as part of the Consumer Operated and Oriented Plan, he said.
The ACA risk-corridor program at the center of the litigation was meant to help keep health plan premiums stable by protecting insurers from significant financial losses in the early years of the ACA exchanges. The federal government would collect payments from insurers that performed well financially and distribute payments to those with high losses.
Congress later limited how much the government could pay out through the program, and HHS paid just a fraction of what insurers were owed. In total, HHS owed insurers more than $12 billion for the three years of the program that ended in 2016. Many health insurers, including the co-op plans, struggled to make ends meet without those payments. Of the original 23 co-ops created under the ACA, just three are still operating.
Insurers filed dozens of lawsuits, including a class action with more than 100 insurers, to recoup those funds. Litigation finance firms and other investors, such as hedge funds, soon came sniffing around and offered to exchange cash upfront for a stake in any potential legal winnings.
The deals were commonly structured so that health insurers would keep whatever investment they received from the litigation funder regardless of their case's outcome. Litigation funders would end up with nothing if the court ultimately ruled against the insurers.
These types of deals allow "plaintiffs to see value from claims before the litigation is concluded, which often takes years," explained Dai Wai Chin Feman, director of commercial litigation strategies and corporate counsel at litigation finance firm Parabellum Capital. "The funds are often used for working capital, but can also serve as a useful hedge on the time and risk of litigation."
Because of confidentially agreements, it's hard to know how many health insurers took these deals, but some sources said many insurers were interested.
Garrett Ordower, managing director of litigation finance firm Lake Whillans, which invested in risk-corridor cases, said that while there was significant interest in the arrangements among defunct insurers that were in liquidation and being managed by trustees, litigation funders also found plenty of opportunity to invest in cases brought by operational insurers as well.
"There certainly were investment opportunities and deals in this space that were being taken on behalf of very solvent and operational insurers who wanted to look for ways to hedge their risks going into a potential binary outcome in the Supreme Court, and potentially for reasons of cash flow, if they were looking for money for specific purposes," Ordower said.
He declined to say which risk-corridor cases Lake Whillans invested in or how much capital the firm committed to risk-corridor litigation, citing confidentially agreements with clients.
Publicly available court documents show that Illinois and Connecticut insurance departments, acting as liquidators for co-ops in their states, needed cash to pay healthcare claims the insurers owed when they went out of business. In addition to paying HealthyCT $10.5 million, Juris paid the estate of Land of Lincoln nearly $29 million for a significant portion of any potential winnings, according to legal documents filed in the Circuit Court of Cook County, Ill.
Its bets paid off. Four years after insurers first sued to recover risk-corridor payments, the Supreme Court ruled 8-1 in April that the government must pay up.
Since then, lower courts have worked to resolve dozens of pending risk-corridor lawsuits. The U.S. Court of Federal Claims in July ordered the federal government to pay Land of Lincoln $90.8 million in unpaid risk-corridor funds. About 71% of that reward went to Juris Capital on Aug. 10, according to a spokeswoman for the Illinois Department of Insurance.
It's unclear if Juris invested in other risk-corridor lawsuits. David Desser, managing director of Juris, said he could not comment on specific investments.