High Court Checks Government in Risk Corridors Case

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Morgan Lewis

In Maine Community, the US Supreme Court found on April 27, 2020, that the Risk Corridors program created by Congress was a “money-mandating obligation” requiring the federal government to make payments under Section 1342 of the Affordable Care Act; that only a direct repeal of the statute itself would eliminate the obligation; and that insurers were entitled to sue under the Tucker Act to collect these payments.

On April 27, the Supreme Court issued an important decision concerning the viability of the health insurance marketplace, known commonly as the exchanges, among a series of decisions interpreting provisions of the Patient Protection and Affordable Care Act (Affordable Care Act). Maine Community Health Options v. United States, together with Moda Health Plan v. United States, Land of Lincoln Mutual Health Insurance Company v. United States, and Blue Cross and Blue Shield of North Caroline v. United States were on certiorari to the high court. Maine Community consolidates all the cases by way of its analysis and holdings.

The case addresses the legality of the Affordable Care Act’s Risk Corridors program, which established a failsafe for insurers capping their losses to incentivize them to join the then-newly created healthcare exchange marketplaces.

Background

Recall that the Affordable Care Act created several mechanisms to expand healthcare coverage to individuals previously uninsured. In conjunction with expanding Medicaid and providing consumer protections when purchasing insurance, the Affordable Care Act also created a tax credit that would be available to individuals to help with the purchase of affordable insurance coverage in the new exchange marketplace. Concurrently, the Risk Corridors program was created to help defray the risks for health insurers and mitigate the losses associated with covering a newly insured and higher-risk group of individuals.

The Risk Corridors program was a temporary framework intended to help compensate insurers for losses incurred for the first three years by establishing a formula, which was contained in Section 1342 of the Affordable Care Act. The statute provided that if the insurance plan lost a certain amount of money, the “Federal Government shall pay the plan.” Conversely, if the insurer made a certain amount of money, the plan “shall pay” the government.

Maine Community’s analysis focused on the meaning of Section 1342 and the subsequent actions by Congress involving the Risk Corridors program. The high court evaluated whether insurers have the right to payment under Section 1342, and whether they sued under the appropriate statute to obtain money damages from the federal government for the unpaid amounts. In its 8-1 decision, the court determined they do.[1]

When Congress enacted the Affordable care Act in 2010, which included the operative statutory provision at issue in the case (Section 1342), Congress did not appropriate concomitant funding to fulfill the government payment obligations. In 2014, the first year of the program, the government owed insurers $2.87 billion in Risk Corridor payments. Congress, however, continually failed to appropriate any funds for those payments and blocked the Centers for Medicare and Medicaid Services (CMS) from using other funding to pay Risk Corridor payments. The Risk Corridors program, and further, took action to adopt riders (instructions) to appropriations bills in which they prohibited other funding appropriated from being used to pay insurers under the Risk Corridors program.

Three Issues Considered

The Supreme Court addressed three issues in Maine Community:

  • Did Section 1342 of the Affordable Care Act obligate the government to pay participating insurers the full amount calculated by the statute?
  • Did the obligation survive, given the subsequent acts of Congress to defund, or not fund the program through appropriations riders?
  • Can the insurers sue to recover under a private right of action provision in the Tucker Act?

The court answered all three questions in the affirmative, thereby reversing the determinations of several appellate courts.

First, the high court held that Congress created a “rare money-mandating” obligation that required the federal government to make payments to health plans under a formula. By failing to appropriate enough dollars to make the payments required, Congress simply did not appropriate enough money to fulfill its obligations to the insurers, but did no more. In a passage invoking Alexander Hamilton, the court held that the “Government should honor its obligations. … Alexander Hamilton stressed this insight as a cornerstone of fiscal policy”.

Second, the court held that the refusal of Congress to provide funding did not undermine the statutory obligation. The court concluded that the use of riders to appropriations bills as the sole method to undercut a statute did not result in the repeal the underlying obligation by the government in the statute itself. The court determined that the appropriations riders did not qualify as an “implied repeal” of the statute. An outright repeal of the statute was required and did not occur.

Third, once the court validated the federal government’s statutory obligation to pay the money to aggrieved insurers, it then turned to the question of whether the appropriate remedy for money damages was the Tucker Act, or whether the government could invoke its sovereign immunity often afforded local, state, and federal governments. The court determined that the insurers properly relied on the Tucker Act as the means to sue for damages in the Court of Federal Claims. The Supreme Court ruled that the Risk Corridors statute meets the requisite “fair interpretation” test of the Tucker Act to mandate compensation for damages and that no exception applies.

Thus, the high court found that the Risk Corridors program created by Congress was a “money-mandating obligation” requiring the federal government to make payments under the Affordable Care Act’s Section 1342; that only a direct repeal of the statute itself would eliminate the obligation; and that insurers were entitled to sue under the Tucker Act to collect these payments.

Conclusion

In its near unanimous decision, the Supreme Court makes clear that when Congress creates a money-mandating obligation, subsequent Congresses cannot avoid that obligation merely by refusing to fund it. Only an actual repeal can remove such an obligation. Given the frequency with which Congress passes unfunded statutory mandates, the decision in Maine Community may prove highly consequential. Despite a lack of funding, such mandates may have substantial value, to the extent that the original obligation constitutes a money-mandating commitment.

Many have followed the Risk Corridors litigation and were concerned that the failure to uphold the program would further impede the exchange marketplace. This would set a dangerous precedent in which entities could not rely on the framework of a new government program nor the promised incentives intended to create a gradual slope to sustainability, such as the Risk Corridors program.

The decision in Maine Community also begs the question for the next Affordable Care Act case before the high court, which also involves a defunding of sorts- the reduction of the individual mandate tax to $0 and whether that action eliminates the individual mandate itself, and the Affordable Care Act in total. Does Maine Community signal an analysis that could be used to save the Affordable Care Act itself? We will have to wait and see. For now, Maine Community confirms that the court does not take kindly to the erosion of government obligation by less than statutory means, and has helped to prop up the viability of the exchange marketplace as a means to increase access to care.

 

[1]Justice Sotomayor delivered the opinion, in which Justices Roberts, Ginsburg, Breyer, Kagan, and Kavanaugh joined and in which Justices Thomas and Gorsuch joined all but Part III-C, and Justice Alito dissented.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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