DOJ files motions to dismiss insurer risk corridors lawsuits, while also pursuing settlements

BlueCross BlueShield of North Carolina filed suit seeking $129 million in unpaid payments

The Department of Justice (DOJ) on Friday filed motions to dismiss two lawsuits filed by insurers seeking payments under Affordable Care Act's (ACA) risk corridors program.

Background: Risk corridors funding, payments fall short

The ACA's risk corridors provision permits federal payments to health insurers to help offset the costs they might incur by enrolling a higher-than-expected number of sick people through the insurance exchanges.

The program, which launched in 2014 and will end after 2016, is meant to reduce the risk for insurers in the early years of setting premiums for individual and small-group insurance markets under the ACA. If insurers lose money on exchange plans above an expected limit, HHS is required to reimburse a designated amount of their losses. Companies with better-than-expected medical expenses have to return some money to the government.

However, CMS has faced a significant funding shortfall and has been unable to reimburse insurers in full. Several insurers have filed lawsuits against the federal government seeking full payments under the program.

DOJ files motions to dismiss lawsuits

DOJ filed motions to dismiss lawsuits filed over the payments by Moda Healthcare and BlueCross BlueShield of North Carolina (BCBSNC).

BCBSNC in June filed suit against CMS seeking $129 million in unpaid payments under the risk corridors program for 2014. That same month, Moda Healthcare sued CMS seeking $101 million the health plan claims it is owed under the risk corridors program for both 2014 and 2015.

DOJ argued that the federal government is not obligated to pay the insurers in part because Congress has "directly spoken" about its intent to limit federal funding for the initiative. According to DOJ, although the ACA authorized CMS to make risk corridors payments to insurers, Congress later limited that authority by prohibiting CMS from using alternate funds. DOJ wrote that if the federal government were obligated to make the payments, "HHS would be the uncapped insurer of the [health] insurance industry itself," which "Congress did not intend."

In addition, DOJ claimed that insurers currently are not owed any payments from the program because the federal government never established a deadline by which the payments must be made. DOJ wrote, "Under this framework, HHS does not owe [any insurer] final payment before the" program ends.

DOJ pursuing settlements

The motions to dismiss the lawsuits come as DOJ officials have "privately told several health plans suing over the unpaid money that they are eager to negotiate a broad settlement, which could end up offering payments to about 175 health plans selling coverage on ACA marketplaces," Amy Goldstein reported last week for the Washington Post.

University of Michigan Law School professor Nicholas Bagley writes for the Incidental Economist that he believes the motions to dismiss are meant to "increase the pressure on insurers" to settle with DOJ. Bagley believes that insurers would probably win their risk corridor lawsuits, but "because litigation is long and uncertain, insurers might be willing to settle at a discount. And settling at a discount would likely save taxpayer money"(Ferris, The Hill, 10/3; Winfield Cunningham, Washington Examiner, 10/3; Goldstein, Washington Post, 9/29; Bagley, The Incidental Economist, 10/4).

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