Featured in Health Business Daily, August 1, 2017

A New Hope: Moda’s Risk-Corridors Ruling Sparks Cautious Optimism Among Carriers

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry. Subscribe today!

February 20, 2017Volume 27Issue 7

Health insurance carriers had just about given up on seeing money they’re owed through the Affordable Care Act’s (ACA) risk-corridors program. But on Feb. 9, a Court of Federal Claims judge entered a partial summary judgment in favor of Moda Health Plan, Inc., ruling that the federal government unlawfully withheld $214 million. However, it’s unlikely the carrier will see a check any time soon, if at all (see tables, p. 5).

The decision breathed a little life into an issue that most carriers had expected to die. With $8 billion at stake for the 2014 and 2015 plan years — and more once 2016 is calculated — other insurance carriers might push the government to make good on its IOUs. At least 17 cases are pending in the Court of Federal Claims, including one class-action suit, according to a Health Affairs blog post.

“This has the potential to be significant, and all insurers should be reading this case very carefully,” says Bruce Merlin Fried, a partner in Dentons’ health care practice in Washington, D.C. “While this case on behalf of Moda, the implications for all carriers is in the billions of dollars.” Fried acknowledges this is the first shoe to drop, and says “we have a way to go before the government starts writing checks.” Helaine Fingold, an attorney with Epstein Becker Green in Baltimore, agrees and says the discussion around risk corridors is “only academic” at this point. “Even if there is a decision that the government owes the money, it’s still not clear that it’s going to get paid,” she says.

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In his 40-page decision, Judge Thomas C. Wheeler wrote that HHS had “repeatedly recognized its obligation to pay insurers the full amount of their owed risk-corridors payments.” However, he noted that during oral arguments, government witnesses argued that it was under no obligation to pay Moda the full amount owed if Congress failed to appropriate additional funds for the program. Wheeler disagreed and said that Sec. 1342 of the ACA requires “full annual payments to insurers.” He noted that Congress never modified the risk-corridors program to make it budget-neutral.

Quoting a 1970 court of appeals case (Brandt v. Hickel), Wheeler wrote that “the Court directs the Government to fulfill [its] promise. After all, to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.”

The three-year risk-corridors program was designed to shield carriers that wind up with a disproportionate share of costly enrollees. Carriers expected that CMS would make up any shortfalls. In November, CMS said it would not pay insurers any of the money they are owed under the program for the 2015 plan year as it continues to pay down money owed for 2014. In that year, exchange carriers were paid just 12.6% or $362 million of the $2.87 billion in money owed (HPW 10/5/15, p. 7).

Fried notes that many carriers already have left the exchanges or have reduced their footprints. Humana Inc. on Feb. 14 said it won’t sell 2018 coverage on the public exchanges this fall (see story, p. 3). The company already had trimmed its presence on the exchanges to 11 states, and began the year with about 150,000 customers. On Dec. 8, Humana said it would write off essentially all of the $591 million in receivables owed to it from the risk-corridors program. Other carriers have made similar decisions privately. In 2015, Humana collected about $30 million from the corridors program, and another $8 million last year for receivables associated with the 2014 plan year. The write-off resulted in a one-time loss of $2.45 per share, which was reflected in fourth-quarter 2016 earnings (HPW 12/12/16, p. 8).

Will Feds Appeal or Deal?

Some industry observers say the federal government has no choice but to appeal the decision. That ultimately could push the case all the way to the Supreme Court. But the administration, at least in theory, could cut a deal with carriers and pay them a percentage of what they’re owed through the corridors program. Such a move could give carriers a financial incentive to continue on the exchanges — or move back — for the 2018 plan year, or until Republican lawmakers finalize an ACA replacement.

“Industry confidence and plan viability have been eroded by the breach of a federal commitment to compensate plans for taking on higher risk in a reformed individual market,” says William Pewen, Ph.D., who served as senior health policy advisor to former Sen. Olympia Snowe (R-Maine) during the crafting of the ACA. “In light of the Moda decision, the administration could seize an opportunity to foster exchange plans by meeting its commitment to compensate sponsors for the risks they incurred in serving millions with the greatest need for care.”

By paying out only a portion of what’s owed, maybe 50%, the Trump administration could spin the move as a win because it cut in half money that was owed to carriers. “But where will that money come from?” asks Deborah Dorman-Rodriguez, partner and leader of Freeborn & Peters’ Healthcare Practice Group in Chicago. “If you agreed, for example, to use the Judgment Fund to pay out half of what is owed to carriers that have sued, you could just be inviting additional litigation from those who haven’t sued,” she says. “I don’t know if discussions are off the table in terms of a resolution.” David Kaufman, also a partner at Freeborn & Peters, suggests a creative Congress might be able to come up with a legislative fix.

Any money paid to carriers as a result of a lawsuit would likely come from the federal Judgment Fund, which was established by Congress in the 1950s. The Fund is used to pay settlements of “actual or imminent lawsuits” against the federal government, according to the Dept. of Treasury’s web page. Last September, the Obama administration signaled that it might be willing to settle risk-corridors lawsuits by tapping the Fund. Republicans decried such a move as illegal (HPW 10/10/16, p. 1).

But Republican lawmakers appear to have painted themselves into a corner. A catch-all budget bill passed by Congress and signed by President Obama in late 2013 requires the risk-corridors program to be budget-neutral. Former presidential candidate Sen. Marco Rubio (R-Fla.) took credit for hobbling the program, which he dubbed “Obamacare’s crony capitalist bailout.”

“HHS raised the prospects of settling on the unpaid risk-corridor receivables, and we know that [the Dept. of Justice] had discussions with some insurers,” says Michael Adelberg, a principal at FaegreBD. “Then some GOP members of Congress expressed concern,…the election occurred, and things ground to a halt. With this ruling, and the previous ruling certifying a class for insurers with unpaid risk corridor claims, we might see renewed discussions.”

“It seems there is so much dissention about how to move forward that it would surprise me if [Congress] were able to come to a resolution,” says Fingold.

Class Action Decision Is Expected ‘Any Day’

It’s been almost a year since Oregon-based Health Republic Insurance Co. filed a $5 billion class-action lawsuit against the federal government for violating Sec. 1342 of the ACA. The now-defunct Consumer Operated and Oriented Plan (CO-OP) had about 15,000 group and individual members before it voluntarily closed in late 2015 to avoid falling short on funds to pay claims. The insurer determined it was owed more than $7 million through the risk corridors program for 2014, and at least $15 million more for the 2015 plan year.

Dawn Bonder, the CO-OP’s CEO, says she’s pleased with the Moda ruling, but not surprised. The federal government was denied a motion to dismiss the class-action suit. In the Moda case, Judge Wheeler cited “pretty heavily” from the motion Health Republic filed last fall. “We expect a positive outcome given [Moda’s Judge Wheeler’s] parroting of the language of our motion to dismiss. It’s hard to imagine we wouldn’t be granted summary judgment.” She expects a summary judgement motion in the class action to be filed any day.

“It’s great that Moda won on summary judgment, but it’s just another box that gets checked in the path. I can’t imagine it’s not going to be appealed [by the federal government], and who knows what will happen legislatively” to the ACA.

And not all courts have been on the side of carriers. Land of Lincoln Health, another CO-OP, recently appealed a November federal claims court’s decision that it was not entitled to $73 million owed through the corridors program. Judge Charles Lettow ruled that the risk-corridors program didn’t create binding contracts. Other carriers have filed amicus briefs in support of the CO-OP.

Fried suggests all of the cases could ultimately be consolidated into a single matter, where the underlying legal issues could be disposed of.

See the opinion and order on the Moda case at http://tinyurl.com/j5ukgja.


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