Resolving a split in the lower courts, the Federal Circuit issued two decisions on June 14, 2018, wherein the Court held that health insurers Moda Health Plan Inc. (Moda Health) and Land of Lincoln Mutual Health (Land of Lincoln) are not entitled to the full risk corridor payments established by Section 1342 of the Affordable Care Act. The decisions will affect all cases involving claims for outstanding risk corridors payments – payments that would total approximately $12.3 billion. The opinion issued in Moda Health Plan Inc. v. U.S. can be found here. The opinion issued in Land of Lincoln Mutual Health v. U.S. can be found here.

In an effort to encourage insurance companies to offer ACA-compliant insurance plans without adding risk premiums to the cost of the plans, Section 1342 of the ACA directed the Secretary of HHS to establish what is referred to as the “risk corridors” program. Under the risk corridors program, plans whose costs of providing coverage exceeded the premiums received from CMS would be paid a share of their excess costs by the Secretary. Plans whose premiums exceeded their costs would pay a share of their profits to the Secretary. It was anticipated that the amounts paid-in by plans whose premiums exceeded their costs would essentially offset the amounts paid to plans whose costs exceeded their premiums.

However, rather than the payments-in matching up with the payments-out as anticipated, in September 2015, CMS announced that it expected payments-in of approximately $362 million but expected payments-out totaling $2.87 billion. By the end of the three-year period, CMS calculated that payments-in fell short of the total amount of payments-out by over $12 billion. CMS, Risk Corridors Payment and Charge amounts for the 2016 Benefit Year, available here (Nov. 2017).

Despite the legislative directive regarding corridors payments, when Congress passed its appropriations for HHS for FY 2015 (the first year the risk corridors applied), the lump-sum appropriation included a rider that prohibited HHS from using any of the funds for risk corridors payments. Congress enacted identical riders in FY 2016 and FY 2017.

The district court in Moda Health ruled in favor of the insurance company and held that the risk corridors payments were owed pursuant to statute. However, in a three-two split, the Federal Circuit Court of Appeals reversed and held:

Although section 1342 obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments, we hold that Congress suspended the government’s obligation in each year of the program through clear intent manifested in appropriations riders. We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments. Accordingly, we hold that Moda has failed to state a viable claim for additional payments under the risk corridors program under either a statutory or contract theory.

Justice Newman wrote a lengthy dissent that concluded with the following:

The government’s ability to benefit from participation of private enterprise depends on the government’s reputation as a fair partner. By holding that the government can avoid its obligations after they have been incurred, by declining to appropriate funds to pay the bill and by dismissing the availability of judicial recourse, this court undermines the reliability of dealings with the government.

Based on the controversial nature of this decision and strong decent, it seems likely that there will be a request for an en banc hearing or appeal to the U.S. Supreme Court.