On April 27, 2020, the Supreme Court ruled in Maine Community Health Options v. United States that the government must pay over $12 billion to individual and small group health insurers who had claimed losses under the Risk Corridors program established by Section 1342 of the Affordable Care Act (ACA). The Risk Corridors program created a temporary framework to compensate insurers for unexpectedly unprofitable plans during the ACA’s first three years.
The Risk Corridors program sought to limit profits and losses for insurance companies and set a formula for calculating payments. In short, if insurers made more money than allowed by the formula, the insurers had to pay some money back to the government; if insurers lost money, then the insurers were owed money by the government. The ACA neither appropriated funds for these yearly payments nor limited the amounts that the government might pay. Congress subsequently enacted an appropriations rider that prohibited HHS from using its funding to make risk corridors payments.
As background on the litigation, four insurers sued for damages in the Court of Federal Claims under 28 U.S.C. § 1491 (known as the Tucker Act), which grants jurisdiction to the court to hear specialized claims against the government. The insurers asserted that their plans were unprofitable during the Risk Corridors program’s three-year term and that, under § 1342, the HHS Secretary still owed them hundreds of millions of dollars. Only one insurer prevailed before the Court of Federal Claims, and a divided panel of the United States Court of Appeals for the Federal Circuit ruled for the government in each appeal.
The Supreme Court consolidated the cases for review and reversed the Federal Circuit’s decisions. In an 8-1 decision, the Supreme Court held that the government was required to pay all amounts owed under the Risk Corridors program, which exceeded $12 billion. Additionally, the Supreme Court held that insurers may sue the government under the Tucker Act, which has a six-year statute of limitations, to recover that obligation. The enactment of the appropriations rider did not defeat the insurers’ claims for payment, as those claims funds will be satisfied instead by the Judgment Fund, a statutorily-created fund that pays court judgments and compromise settlements of lawsuits against the government where another source of appropriated funds is not available.
The Court’s decision in Maine Community Health Options will have an effect in the near future on insurers’ calculations under the ACA’s Medical Loss Ratio provision. Under this provision, insurers that cover individuals and small businesses must spend at least 80% of their revenue on health-care costs (large-market insurers with more enrollees must spend at least 85%) or write rebate checks to their enrollees. According to data from the Kaiser Family Foundation, without any additional payment from the Risk Corridors program, insurers are already on track to issue an estimated $2.7 billion in rebates to their enrollees for 2020. The rebates are calculated based on a three-year rolling average, i.e., the rebate checks for 2021 will be calculated using their insurer’s financial data from 2018, 2019, and 2020. Medical Loss Ratio calculations are based on the timing of the insurer’s receipt of revenues. Accordingly, even though the judgments in the Risk Corridors cases will be for funds owed to insurers for prior years, these judgments will mean that insurers will have substantially more revenue for 2020, leading to even bigger rebates.
The Supreme Court’s decision in Maine Community Health Options v. United States. is available here. The data on the Medical Loss Ratio provision from the Kaiser Family Foundation is available here.