The U.S. Supreme Court will hear oral arguments Tuesday on a lawsuit involving the Affordable Care Act’s risk corridor program that could have implications for the future of public-private partnerships in healthcare and beyond.
The case centers on some $ 12 billion in payments dozens of health insurers say they are owed due to losses on the state health insurance exchanges. The payments were initially scotched by CMS when the agency declared risk corridors would be revenue neutral. They were then zeroed out by Congress.
Observers say the money and where it ends up will not be the ultimate thrust of the high court’s decision — it’s whether or not the business sector will have trust in the federal government in current and future partnerships.
Legal experts have been puzzling as to why the high court decided to take on the appeals of four regional health insurers duking it out with HHS in lower courts regarding reimbursement they say is owed under the ACA’s now dead risk corridors program.
Risk corridors were designed to keep insurers from irrationally pricing premiums during the first years of the state health insurance exchanges when it was unknown what the market for such plans would be. Under the terms of the program, plans in the exchanges with claims that were 97% or below that of its projections made payments to plans whose claims were 103% or higher than what they had projected.
Initially, the federal government said any plan that needed the risk corridor payments would receive them. But in 2014, CMS, which oversaw the program, said it would be budget neutral — as opposed to the agency making appropriations from its general funds to make risk corridor payments. The following year, HHS said that based on the budget neutral formula it could only pay about one-eighth of what was owed, or slightly more than $ 240 million of $ 3 billion claims in total. Congress also passed an appropriations rider blocking CMS from dispersing general funds to insurers. That essentially killed the program.
“The primary impact of the shortfall was really felt by the insurers who participated in the early years of the marketplace — it was particularly devastating for co-ops and other smaller insurers who expected these funds to come in and didn’t have an alternative when they didn’t,” Katie Keith, a legal scholar and a faculty member at Georgetown University’s Center for Health Insurance Reforms, told Healthcare Dive.
About a third of the non-profit co-op health insurance plans went out of business partly as a result of losing the risk corridor payments, although the larger insurers were able to soldier on by raising premiums. But these days competition in the exchanges is expanding rather than shrinking, Keith said.
Timothy Jost, professor emeritus at Washington & Lee law school who has written extensively about the legal wrangling, is puzzled over the high court’s decision to take on the case. Still, he said the rationale is very straightforward.
“Four members of the court thought there was an important legal question that needed to be answered,” he told Healthcare Dive, referring to the number of justices required to grant a hearing on cases involving agreements between the federal government and private entities.
Keith said the court may be amenable to some changes in the outcome of the litigation involving the four health plans: Moda Health, Maine Community Health Options, Land of Lincoln Mutual Insurance Co. and Blue Cross Blue Shield of North Carolina.
The plans sued first in the Federal Court of Claims and then the Federal Court of Appeals, and then appealed to Supreme Court after they mostly lost their cases. However, dozens of more health plans have sued over the risk corridor issues. Should those four insurers entirely prevail at the high court, the feds could wind up owing them and other payers as much as $ 12.3 billion in risk corridor payments.
Jost doesn’t think such an outcome is likely. He believes the court is more interested in determining whether a public-private partnership program could be disabled by Congress through the appropriations process, or even a federal agency on a regulatory whim.
“The court could decide that Congress could change funding rules in the middle of all sorts of programs,” he said. “It will be kind of an important indicator of the health of public-private partnerships not only involving the ACA, but Medicare Advantage, agriculture, defense and many other areas.”
However, should the court rule fully in favor of the insurers and order CMS to cough up the risk corridor payments, Keith believes consumers could actually benefit from the insurers’ windfall.
“The impact would vary by state and insurer, but consumers could receive higher rebates through medical loss ratio refunds, or insurers could lower premiums. There would be a number of operational questions,” she said.