June 28, 2016

Obama Administration Asks Court to Dismiss ACA Risk Corridor Litigation

Holland & Knight Alert
Nicole M. Elliott

Yet another challenge is being brought against the Affordable Care Act (ACA), this time regarding the ACA's risk corridor program. The first of several lawsuits over this program was filed in February 2016 by an Oregon health insurance company, which wants its 2014 and 2015 risk corridor claims paid in full.

On June 24, 2016, the Obama Administration filed its first responsive pleading ­– and, not surprisingly, particularly considering the litigation's high-stakes, politically charged nature – asked the U.S. Court of Federal Claims to dismiss the lawsuit, arguing that the case cannot be heard until 2017, after the conclusion of the temporary three-year program.

Program Background

The risk corridor program was designed to provide stability and reduce risk to those issuers offering plans on Health Insurance Marketplaces. Basically, the program requires issuers that have lower medical spending than expected on the Marketplaces to make contributions into the program and provides payments to those issuers that suffer losses because their medical spending exceeded what was expected. The program is scheduled to operate only from 2014 to 2016, the first few years of the Marketplaces.

For 2014, the U.S. Department of Health and Human Services (HHS) announced that issuers that experienced losses in the Marketplaces submitted $2.87 billion in claims under the program compared with only $362 million owed by issuers that had gains. Consequently, HHS prorated the claims and announced it will pay less than 13 cents on the dollar for the $2.87 billion in claims for 2014.

Appropriations for this program in 2014 and 2015 do not exist thanks to congressional spending laws enacted after issuers had already started offering plans on the Marketplace. These post-ACA enactment spending laws suggest that the risk corridor program must be "budget neutral" and can pay out only what was received in contributions from issuers.

Administration's Position

HHS seems to acknowledge that full payment of claims must occur, stating that it would make good on outstanding 2014 claims using contributions in 2015, and if necessary, contributions in 2016. Once all contributions have been paid out for 2016, HHS said, it will "explore other sources of funding for risk corridor payments, subject to the availability of appropriations." Statements such as this are giving little comfort to issuers who argue that full payment of 2014 claims are due now, notwithstanding the spending laws. In an effort to secure full payment on their risk corridor claims immediately, several issuers have filed lawsuits before the U.S. Court of Federal Claims, including the Heath Republic Insurance Company of Oregon.

Only until the last contributions are dispensed to claimants in 2017, the Obama Administration argues in response to the complaint, will issuers be able to determine whether money is owed. It is likely that the Administration will take a similar position in all risk corridor litigation, leaving issuers with a battle ahead regarding whether and when they will be fully paid under the program.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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