Insurers participating in the Affordable Care Act’s (ACA) risk corridors program are owed the $12 billion they expected to receive from the federal government when participating in the health insurance exchanges, the US Supreme Court ruled this week.
In the 8-1 decision, the justices concluded that the ACA “established a money-mandating obligation” and that “Congress did not repeal this obligation.” The case, known as Maine Community Health Options v. US, consolidated actions brought by four insurers that participated in the exchanges and said they had counted on the risk corridors payments being made.
The intent of the risk corridors program was to entice insurers to offer individual and small-group plans on the ACA exchanges amid the uncertainty of the first three years of the program. Under the law, insurers were promised that if they wound up with losses beyond a certain limit, they would receive money from the government. Conversely, if insurers wound up too profitable, they would have to make payments. The aim of the temporary program was to curb volatility in premiums by limiting risk.
The first year, the payments due to unprofitable plans exceeded the amount that profitable plans paid by about $2.5 billion, according to CMS. Appropriations bills passed by Congress in the exchanges’ early years prevented CMS from using other funds to make up the difference.
The experience of one of the lawsuit’s plaintiffs, the Illinois co-op Land of Lincoln Mutual Health, illustrates how the risk corridors program, and lack of funding, played out for some insurers. According to the program methodology, Land of Lincoln expected a risk corridors payment of about $4.5 million for its ACA individual and group market plans for its maiden year on the exchange, 2014, according to CMS data.
Instead, the insurer received a prorated amount of $566,824―12% of the total. For year two, the payment was expected to be an additional $71.8 million, but Land of Lincoln received $149,224 to be applied to its 2014 balance. In the final year, the insurer’s payment was supposed to be $52.7 million. It received roughly $39,000 to apply to its 2014 balance. By October 2016, Land of Lincoln had shut down.
The federal government contended that it did not have to make the payments because no appropriation was made for it. The Supreme Court did not embrace this argument. Justice Sonia Sotomayor wrote for the majority that “the plain terms of the Risk Corridors provision created an obligation neither contingent on nor limited by the availability of appropriations or other funds.” She concluded: “These holdings reflect a principle as old as the Nation itself: The Government should honor its obligations.”
Some insurers could benefit from an infusion of this long-awaited money, but the court remanded the case to lower courts to sort out details such as distribution, so the timeline is still unclear. The funds will arrive too late for insurers that closed down, such as Land of Lincoln.
The Association for Community Affiliated Plans, which represents insurers, argued in its brief to the court that the delay devastated community-based plans as they received “pennies on the dollar that the ACA’s text promised them.” The decision by the federal government also prompted questions from groups such as the US Chamber of Commerce, which asked whether businesses should trust the federal government to keep its promises.
This is not the only ACA-related cost front on which the administration is arguing to the courts that it shouldn’t have to pay. The Trump administration halted cost-sharing reduction payments in October 2017 and has said it did not have to make the payments because Congress never appropriated money for cost-sharing reduction payments, nor did it include a funding mechanism for them in the ACA.