Risk Corridor Payment Outlook

The Takeaway:

We anticipate key developments in the status of risk corridor payments in the next few months. First, CMS is expected to publish final totals for all three years of the program as early as this month. Second, in early 2018, we expect the Federal Appeals Court to issue a decision on whether the government is required to make these payments. While the outcome of this case may be further appealed to the Supreme Court, it will provide more clarity on whether the government will make these payments. If the federal government does pay receivables for the program, publicly traded health insurers, most of whom have written off the amounts, can expect a total of at least $1.36 billion for 2014 and 2015 alone. This report provides an update on the risk corridors program and details how much is owed to specific managed care companies.

This report provides an update on the status of payments to insurers under the Affordable Care Act’s (ACA) risk corridors program, explaining two expected near-term developments in resolving whether the federal government is required to pay in full insurers’ receivables under the program. The report also quantifies total receivables for the publicly traded insurers that offered plans on the Health Insurance Marketplace in 2014 or 2015, and we will update it to reflect final totals when CMS releases the 2016 figures.

Imminent Publication of 2016 Risk Corridor Amounts Will Clarify Program Totals
First, the Centers for Medicare and Medicaid Services’ (CMS) final accounting for the program is expected as early as this month and no later than January 2018, which will reconcile amounts owed and receivable for the 2016 plan year with amounts owed and receivable in 2014 and 2015, giving insurers a full picture of totals owed to them (or owed by them) under the risk corridors program. Additionally, according to Judge Griggsby’s opinion in her dismissal of Blue Cross Blue Shield of North Carolina’s suit for 2014 payments (which is currently under appeal), disclosure of these totals will mark the conclusion of the three-year program, which is necessary to trigger the federal government obligation to pay risk corridor claims.

Expected Federal Appeals Court Decision in Early 2018 on Whether Payments are Required
Second, based on court documents, we expect the U.S. Court of Appeals for the Federal Circuit to issue a decision in the Land of Lincoln/Moda Health Plan appeals case by early 2018. The outcome is likely to be appealed to the U.S. Supreme Court, which will then decide whether to hear the case. Either outcome will determine whether the federal government is legally required to pay the full amount of risk corridor receivables, which for 2014 and 2015 total approximately $8.3 billion. Health insurers have filed 37 lawsuits seeking to recover full payment from the government under the risk corridor program, including a 150-member class action suit filed by Health Republic Insurance Company, which is awaiting resolution of the Land of Lincoln/Moda appeals case.

Impact on Insurance Issuers

While most issuers have written off their uncollected receivables from the risk corridor program, if the court decides in favor of the plaintiffs and requires the federal government to make risk corridor payments, several insurers would receive a significant windfall. The table below provides calculations of unpaid receivables for 2014 and 2015, as well as whether companies have disclosed writing off those receivables. We will update this table to reflect final totals when CMS releases figures for 2016.

Background on Risk Corridor Lawsuits

The future of risk corridor payments will depend on how the courts answer complex questions of law relating to the federal government’s payment responsibilities under the Tucker Act as well as Congressional intent regarding risk corridor payments upon enactment of the ACA.

Health insurers filed 37 lawsuits seeking to recover full payment from the government under the risk corridor program. The courts thus far have issued differing judgments: some supported insurers’ claims against the government while others upheld the Administration’s view that payments are not due until the conclusion of the program when final payments are calculated.

In November 2016, Judge Charles Lettow of the Federal Claims Court issued a decision finding that the ACA does not clearly entitle health plans to full risk corridor payments. He rejected Land of Lincoln Mutual Health Insurance Co.’s claims that the government’s failure to make risk corridor payments was a takings violation under the Constitution. Land of Lincoln appealed the decision to the U.S. Court of Appeals for the Federal Circuit, where it is currently pending. In a contrasting decision issued in February 2017, Judge Thomas Wheeler of the Federal Claims Court granted Moda Health Plan’s motion for summary judgment, ruling that the government must pay Moda the full amount it is owed under the annual risk corridor program for 2014 and 2015. The government, in this case, appealed the decision to the Circuit Court. We also note a third decision. In April 2017, Judge Lydia Griggsby dismissed risk corridor claims by Blue Cross and Blue Shield of North Carolina, ruling that the health plan was not “presently due” any amount and that full risk corridor payments would only be due when a final accounting for the program is made at the end of 2017.In June 2017, Blue Cross appealed the case to the Circuit Court, which is currently pending.

A common merits panel at the Federal Circuit Court is considering the Land of Lincoln and Moda appeal
cases together. We understand that briefing in the Land of Lincoln appeal case concluded in May and the briefing in the Moda appeal case concluded in September. Based on our review of certain court documents, we believe the appellate court is likely to issue a decision in one of these cases in early 2018.

The three appeals before the Federal Circuit present the central issue posed in risk corridor cases: is the government statutorily obligated to make risk corridor payments in full on an annual basis? In our view, the decision in the appeal cases will set the legal standard for numerous other cases relating to risk corridor payments that are pending in the Federal Claims Court. For example, a 150-member class action lawsuit filed in March 2017 on behalf of Health Republic Insurance Company is pending at the Federal Claims Court. Both the government and class plaintiffs have sought summary judgments in the case, but the judge stayed case proceedings in July 2017 pending a decision by the Federal Circuit Court in the Land of Lincoln/Moda appeal.

Let us know how we can help. To learn more, contact us at 202-629-0000.

Howdy partner!