On September 13, the U.S. Supreme Court scheduled oral arguments in Maine Community Health Options v. U.S., a case concerning the Affordable Care Act’s (ACA) risk corridors program. The risk corridors program was established under Section 1342 of the ACA and was designed to ease insurers’ entrance into the exchange marketplace for 2014, 2015, and 2016. Because little was known about who might enroll in the new marketplace plans and what their health status might be, the risk corridors program sought to protect insurers against inaccurate rate setting. The program set certain thresholds, wherein insurers that experienced higher than expected profits would pay into the program, while those with heavy losses would collect reimbursements from the fund. However, this scheme went awry when, long after insurers’ pricing decisions had been made for 2015, a Congressional budget agreement limited the amount that the federal government could pay insurers to compensate for losses. The Department of Health and Human Services (HHS) ultimately paid insurers only 12.6 percent of what they were promised. For 2015 and 2016, insurers continued to pay into the program, but many of those expecting reimbursements never received the full amounts. This shortfall led to the demise of many co-ops and triggered a series of lawsuits from insurers.
How We Got Here
Maine Community Health Options v. U.S. has drawn national attention because, to many, it concerns more than just money owed. It also has implications for government programs that depend on partnerships with private companies, and the extent to which the government can be held accountable for promises made to those companies. This is because of the events that led to the funding shortfall in the first place:
- March 2013: HHS stated that the risk corridor program was not required to be budget neutral, and regardless of how much money insurers paid into the program HHS would “remit payments as required [.]”
- Summer 2013: Insurers set their 2014 premiums based on this understanding and the market rules in place.
- November 2013: HHS changed its policy on non-ACA compliant transitional plans, allowing them to remain in existence for longer than planned. As a result, many consumers stayed in their existing policies and enrollment into the new marketplace plans was lower and sicker than insurers expected.
- March 2014: HHS continued to tell insurers that they would be paid in full, however, it began to message that it would implement the program in a budget neutral manner – meaning it would not pay out more than it collected. These mixed messages continued for the remainder of the program.
- December 2014: Congress passed an appropriations rider prohibiting HHS from paying out more than it took in. The following year’s appropriations bill included a similar provision.
Funding for the program fell short from two sides. First, payments into the program were lower than expected, because insurers took on additional risk once transitional policies were extended. Second, HHS reneged on its promise to pay the difference, even though it continued to assure the companies, as late as 2016, that the ACA “requires the Secretary to make full payments to issuers.” Neither of these realities were taken into account when insurers set their 2014 and 2015 premiums, and, as a result, private insurers suffered major financial losses.
Now insurers are taking this fight to the U.S. Supreme Court, led by: Land of Lincoln, Maine Community Health Options, and Moda Health Plan. The insurers argue that the government pulled a bait and switch – enticing them to the market with the promise of receiving full risk corridor payments, only to later back out. The government argues that it is not required to make full payments because no appropriation was made, and any obligation it may have had to pay was done away with in the appropriations rider. In December, the Court will assess 1) whether the government had an obligation to pay insurers under the program, and 2) whether Congress can eliminate such an obligation through an appropriations rider (particularly, one made after private entities have already agreed to certain terms). Essentially: Can the government make a promise to private entities and back out without consequence? At stake is $12 billion and the government’s reputation as a reliable business partner.
Stakeholders File Amicus Briefs: Holding for the Government Would Jeopardize Public-Private Partnerships
This month, nine stakeholders filed amicus briefs in preparation of the Court’s oral arguments. To better understand the significance of the case, we reviewed these briefs to identify common themes, including those submitted by:
- America’s Health Insurance Plans (AHIP)
- U.S. Chamber of Commerce
- Highmark Inc.
- Blue Cross Blue Shield Association (BCBSA)
- National Association of Insurance Commissioners (NAIC)
- 24 States and the District of Columbia
- Association for Community Affiliated Plans (ACAP)
- Wisconsin Physicians Insurance Corporation and WPS Health Plan (WPS)
- Economists and Professors
All stakeholders noted that the government’s failure to make payments caused significant injuries. These injuries included: the closure of eighteen insurers (BCBSA); dramatic premium increases (AHIP, BCBSA); forced plan changes for consumers (WSP); and derailing the rate review process for insurance regulators who scrambled to fill bare counties amidst the “government’s neglect” (NAIC).
In addition to these injuries, the stakeholders promoted one common theme: that the Court’s decision could negatively impact public-private partnerships. The economists explained that “an essential economic role of government is to influence the behavior of private parties [.]” The government has a history of doing so by creating incentives like risk mitigation programs, which motivate private sector engagement. The Chamber of Commerce noted that “[i]n many instances, such partnerships are the only way to achieve Congress’ objectives.” Indeed, BCBSA cited that in 2017, 78 percent of what the federal government spent on healthcare was delivered through private sector partnerships. These partnerships span from administering national health programs, like Medicare and Medicaid, to providing services in industries as vast as public housing, transportation, and nuclear energy.
Therefore, the stakeholders argued that the private sector needs to be able to rely on the government as a credible business partner. However, after these events, the stakeholders expressed that this trust has been eroded. From NAIC’s perspective, the government induced insurers to participate in the marketplace on the promise of receiving reimbursements, “only to directly compromise these companies’ financial condition once they committed.” ACAP agreed, writing that “an entire industry had relied on [this promise,]” and allowing the government to walk away from this commitment would serve as an “enormous cautionary tale about why the business community cannot trust the United States government to make good on its statutory commitments.” WPS cautioned that if the government can shirk its commitments on a “whim,” then the private sector will be forced to treat it as any other partner – by increasing prices due to the uncertainty in dealing. It warned that some companies may simply decide not to “gamble” with the government, which could “depriv[e] government programs of private sector expertise and undermin[e] the competitive procurement processes [.]”
Moreover, these stakeholders warned of the hazards of moving to a legal system in which courts can assess Congress’ prior payment commitments based on appropriations legislation made after-the-fact (AHIP). The stakeholders argued that doing so would put a tremendous burden on the business community to “psychoanalyze Congress” (ACAP) and “guess” (Chamber of Commerce) how courts might construe legislative history and ambiguous riders. It would also put smaller companies at a disadvantage, since they do not have the capacity to comb through “voluminous documents and scou[r] them to determine whether a clear pre-existing statutory mandate remains in effect or has been reneged impliedly” (Chamber of Commerce). Many expressed that putting this burden on the private sector would be nonsensical and highly inefficient. It could also force private entities to implement more rigorous contracting procedures in order to hold the government accountable – a practice that can be time-consuming and complex. Stakeholders reasoned that, at a minimum, private entities are entitled to know the rules up front, and to rule otherwise would be to “strik[e] a damaging blow” to the principles of fair notice and reliance (Highmark).
Take-Away: As insurers seek to recoup their risk corridor reimbursements, it is important for stakeholders in and outside the healthcare industry to realize the implications this case may have on public-private partnerships. If the government is allowed to make clear commitments to private entities and then walk away without notice, these partnerships will become “fraught with intolerable risk” (AHIP). This risk will most significantly harm small businesses and consumers, as prices will likely increase to account for the government’s unpredictability. Recently, Presidential candidates have proposed reforming the healthcare system in ways that would heavily depend upon public-private partnerships. However, these reforms are unlikely to be meaningful if private entities cannot take the government at its word.