​Delaying the Risk Corridor Lawsuits

by Nicholas Bagley — Thursday, June 30, 2016

Last week, the Department of Justice asked the Court of Federal Claims to dismiss a massive class-action lawsuit in which co-ops have asked for money owed to them under the risk corridor program. To my knowledge, the government’s motion is its first substantive filing in any of the risk corridor cases.

The litigation was precipitated by dramatic shortfalls in risk corridor payments for the 2014 benefit year. Co-ops were hit especially hard when the government broke its promise to make up some of their losses, which were much larger than anticipated. (Background here, here, and here.)

In its motion, the Justice Department doesn’t contest that it may someday owe the health plans money under the risk corridor program. Instead, the government says that it doesn’t owe them that money now. The risk corridor program runs from 2014 to 2016, which means that surpluses in years 2015 and 2016 may be sufficient to cover shortfalls in 2014 payments. Only when the program has run its course can co-ops know for certain whether they haven’t been paid what they’re owed.

In other words, the lawsuit may one day be viable—but it’s been brought too soon. And it’s not just that the case is unripe, the federal government says. Under the Tucker Act, the Court of Federal Claims doesn’t even have jurisdiction to hear it because the money isn’t “presently due.”

The health plans are likely to push back. They’ll argue that the federal government has in fact promised to make risk corridor payments annually. To figure out who’s right, you’ve got to take a close look at the ACA and HHS’s regulations implementing the risk corridor program. Do they require annual payments, as the co-ops apparently believe? Or can they be read to allow a final payout at the end of the three-year program?

My tentative view is that HHS has the better argument. As the government explains:

[The ACA] requires CMS to calculate risk corridors payments and charges based on claims and other costs for a “benefit year,” but it does not require CMS to pay risk corridors on an annual basis. Likewise, while [the implementing regulation] requires issuers to pay charges within 30 days of notification by CMS, it does not establish any deadline by which HHS must make payments to issuers. … In the absence of a contrary statutory provision, “agencies, not the courts, . . . have primary responsibility for the programs that Congress has charged them to administer.” … HHS exercised this discretion by establishing a three-year payment framework.

That seems right to me, but I’ll be curious what the co-ops have to say in response.

The important point is that the federal government isn’t taking a “sue and settle” approach to the risk corridor litigation. The feds are fighting—for now. And they will keep fighting at least through the summer of 2017, when they receive the data from health plans to make their final risk corridor calculations.

@nicholas_bagley

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