The feds have been ordered to cough up risk corridor money.

by Nicholas Bagley — Friday, Feb. 10, 2017

A judge on the Court of Federal Claims has entered a $214 million judgment against the United States in favor of Moda Health, an Oregon insurer. Moda sued to recover money owed to it under the risk corridor program, a three-year program that was supposed to protect insurers from excessive losses on the exchanges. In emphatic language, the court ordered the government to pay up.

The Court finds that the ACA requires annual payments to insurers, and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments under the ACA. In the alternative, the Court finds that the ACA constituted an offer for a unilateral contract, and Moda accepted this offer by offering qualified health plans on the [exchanges]. …

Today, the Court directs the Government to fulfill [its] promise. After all, “to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.” Brandt v. Hickel, 427 F.2d 53, 57 (9th Cir. 1970).

This is exactly right. Even before the first risk corridor lawsuit was filed, I argued that insurers had viable claims against the federal government for any deficiencies. I’ve expanded on that view in an article in the New England Journal of Medicine and in extensive coverage on the blog. It was only a matter of time before a court entered a money judgment against the United States.

The stakes are enormous. Under the court’s reasoning, every insurer—not just Moda—can sue to recover its risk corridor money. Already, the government owes $8.3 billion for the first two years of the program. Total liability will certainly exceed $10 billion, and will probably be closer to $15 billion.

Will the government pay up? It’ll appeal to the Federal Circuit, but a pending case is likely to resolve the matter. In November, a different judge on the Court of Federal Claims dismissed a risk corridor lawsuit brought by Land of Lincoln. That decision is wrong, and it’s already been appealed. Land of Lincoln filed its opening brief at the end of January.

I expect the Federal Circuit to side with Land of Lincoln, probably sometime this summer or fall. However it rules, the appellate court’s decision will resolve the legal issue at the heart of all the risk corridor cases. Supreme Court review is then a possibility.

But the real wild card here isn’t the courts. It’s Congress. Without an appropriation, the federal government can’t make any payments from the U.S. Treasury, even to satisfy court judgments. As it stands, an indefinite, open-ended appropriation called the Judgment Fund exists to pay money judgment against the U.S. But Congress can amend the statute governing the Judgment Fund to prohibit any payments in connection with the risk corridor program.

Were Congress to sew up the Judgment Fund, the federal government couldn’t pay the judgments entered against it. The obligations would exist in the abstract, but no money would be available to satisfy them. And because the appropriations power has been vested exclusively in Congress, the courts can’t order Congress to appropriate money if it declines to do so.

The judge in Moda is right, though. Refusing to pay is a shabby way to treat insurers, which entered the exchanges in reliance on the federal government’s promises. Our president, however, has a track record of stiffing business partners. I wouldn’t be surprised if he signed a law doing just that.

@nicholas_bagley

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About Nicholas Bagley

Nicholas Bagley is a Professor of Law at the University of Michigan Law School.

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One thought on “The feds have been ordered to cough up risk corridor money.

  1. Ron M

    Why is this getting so little media attention. To me this the reason insurers were exiting ACA, the higher premiums and deductibles. This is unbelievable and I don’t understand why the courts can’t require the Government to pay there obligation’s. Is a contract with the government worthless? .

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