On Monday, April 27, 2020, the U.S. Supreme Court ruled, in an 8-1 decision, that the federal government is required to pay health insurers $12 billion under the Patient Protection and Affordable Care Act’s (ACA) risk corridors program.
Background of the Case
Congress in the ACA created three premium stabilization programs to support insurers during the implementation of the market reforms: temporary reinsurance, permanent risk-adjustment, and the temporary risk corridors program. Lawmakers believed these programs were necessary to protect insurers from the anticipated and unanticipated changes to the individual and small group markets resulting from the market reforms and new populations expected to purchase health coverage through the Exchanges. The Health Law Pulse has previously discussed the risk adjustment program.
The temporary risk corridors program, created pursuant to Section 1342 of the ACA, was intended to protect insurers from inaccurate rate setting during the first three years of the Exchanges. The risk corridors program was limited to qualified health plans. Section 1342 provided a statutory “formula that computed a plan’s gains or losses at the end of each year.” The statutory formula provides that plans with claims less than 97% of their target amount pay into the risk corridors program and plans with claims exceeding 103% of their target amounts were expected to receive payments. This program was based on the risk corridors program in Medicare Part D. Importantly, the ACA did not require the risk corridors program to be budget neutral. The ACA did not appropriate funds or limit the amount that HHS would be required to pay under this program.
In the Payment Notice issued on March 11, 2013, HHS stated that the risk corridors program was “not statutorily required to be budget neutral” and that “regardless of the balance of payments and receipts” HHS would make payments “as required under Section 1342.” However, plans could not have known to account for the “grand-mothered plans” policy announced in a memorandum to State Insurance Commissioners on November 14, 2013. This policy allowed individuals to remain in ACA non-compliant plans if a state permitted. Health plans had filed rates anticipating that this population would be entering the Exchange markets. The Center for Consumer Information & Insurance Oversight provided that “the risk corridors program should help ameliorate unanticipated changes in premium revenue” and “we intend to explore ways to modify the risk corridors program final rules to provide additional assistance.” The 2015 Payment Notice final rule stated that HHS “intends to implement [the risk corridors program] in a budget neutral manner.” In guidance, the Centers for Medicare & Medicaid Services (CMS) announced that “if risk corridors collections are insufficient to make risk corridors payments for a year, all risk corridors payments for that year will be reduced pro rata to the extent of any shortfall.” In the 2016 Payment Notice final rule, HHS provided that:
As previously stated, we anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments. HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers. In the unlikely event that risk corridors collections, including any potential carryover from the prior years, are insufficient to make risk corridors payments for the 2016 program year, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations.
The overwhelming majority of insurers mispriced their premiums during the first three years of the Exchanges. Following the first year of the risk corridors program, the program had a deficit of roughly $2.5 billion. Meanwhile, in December of 2014, Congress passed an “appropriations rider” stating that CMS could not use the funds in the bill to pay for the risk corridors program. Ever since 2014, Congress has continued to pass an appropriations rider that would restrict CMS program management funds from being used to make risk corridors payments, and by the end of the risk corridors program in 2016, the “program’s deficit exceeded $12 billion.” To recoup these losses, insurers that participated in the ACA Exchanges filed a lawsuit in the Court of Federal Claims against the federal government to receive the payments they believed they were owed under the risk corridors program.
Following split opinions in the Court of Federal Claims, the Court of Appeals for the Court of Federal Claims found in favor of the government. A request for an en banc hearing by the health plans was denied and the cases were appealed to the U.S. Supreme Court. The Supreme Court granted the insurers’ writ of certiorari and consolidated the three cases with the same issue in dispute. The four insurers in the consolidated case were Maine Community Health Options, Blue Cross and Blue Shield of North Carolina, Land of Lincoln Mutual Health Insurance Company, and Mode Health Plan, Inc.
The opinion stated that the cases presented three questions:
(1) First, did §1342 of the Affordable Care Act obligate the Government to pay participating insurers the full amount calculated by that statute?
(2) Second, did the obligation survive Congress’ appropriations riders?
(3) Third, may petitioners sue the Government under the Tucker Act to recover on that obligation?
The majority of the Supreme Court found the answer to each of the questions is “yes.”
First, the Court found that Section 1342 created a “government obligation to pay” the Exchange insurers. Justice Sonia Sotomayor, writing for the majority, explained that, similar to a contract, the “terms and context” of Section 1342 created an express legal duty on the part of the government to pay insurers if their plan’s costs exceeded their profits. As Justice Sotomayor explained, Section 1342 includes the commanding word “shall” in connection with whether the government will pay insurers “for losses that exceeded the statutory threshold” under the risk corridors program. Justice Sotomayor also states that the “mandatory nature” of Section 1342 is underscored by reference to the other premium stabilization program provisions in the ACA that differentiate “between when the HHS Secretary ‘shall’ take certain actions and when she ‘may’ exercise discretion.” Congress, therefore, chose to make payments under the risk corridors program mandatory and must follow through with its promise.
In terms of whether Congress impliedly repealed its obligations under Section 1342 through its subsequent appropriations riders, the majority reiterated its precedent that “’repeals by implication are not favored’” by the Court. Instead, when presented with potentially conflicting statutes, “the Court will ‘regard each as effective’ – unless Congress’ intention to repeal is ‘clear and manifest,’ or the two laws are irreconcilable.” Justice Sotomayor explained that “in the appropriations context” the government must do more than show that the program was not appropriately funded to prove that the law was in fact repealed. In this case, the appropriations riders neither “manifestly repealed or discharged the government’s uncapped obligation.” Simply stating that “none of the funds made available by this Act” could be used for risk corridors payments, the appropriations riders did not effectively repeal the government’s obligation under Section 1342.
Finally, the Court found that the insurers properly sued for damages pursuant to the Tucker Act, which waives sovereign immunity and permits suits against the federal government for damages that arise under an express or implied contract to which the government is party. Since Section 1342 states that the Secretary “shall pay,” the majority found that this language can be interpreted “’as mandating compensation’” and “reflects congressional intent ‘to create both a right and a remedy.’”
Justice Sotomayor closed the majority opinion by stating that the holding reflects “a principle as old as the Nation itself: the Government should honor its obligations.”
In a dissenting opinion, Justice Samuel Alito explained that the Tucker Act does not provide the insurers with a right of action to sue the federal government and that the majority’s holding that Section 1342 gives this right of action by implication is improper. Justice Alito further stated that the Court’s decision will turn over “billions of taxpayer dollars… to insurance companies that bet unsuccessfully on the success” of the program and that the Court’s decision has far reaching implications since a number of federal statutes include “the phrase the ‘Secretary shall pay.’”
The money to pay health insurers the $12 billion in risk corridors payments will come from the U.S. Department of Treasury’s Judgment Fund following the Court of Federal Claims issuing a judgment for each insurer. The case may have far reaching implications, primarily on existing lawsuits filed by insurers alleging they are owed cost-sharing reduction payments under section 1402 of the ACA. In October 2017, President Trump directed the Secretary of the Treasury to stop making reimbursements to insurers for cost-sharing reductions provided to enrollees.
The Supreme Court has agreed to hear two other ACA cases this term. The first is Little Sisters of the Poor v. Pennsylvania (19-431) related to the ACA’s contraceptive mandate. Oral arguments will be heard on May 6, 2020. And, of course, Texas v. U.S. (19-841), in which the plaintiff challenges the constitutionality of the ACA after the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate penalty. A date for oral argument has not been set. The Health Law Pulse blog has addressed the case here and here.