SCOTUS rules feds must pay $12B owed to carriers from years ago, with three major implications...

NOTE: BEFORE reading below, read my explainer from last November on the Risk Corridor Massacre lawsuit and potential Medical Loss Ratio implications.

OK, got all that? Good.

Well, sure enough, this morning the U.S. Supreme Court issued their ruling, and it wasn't even close:

A big Obamacare decision from SCOTUS this morning: The court rules 8–1 that insurers who lost money under the Risk Corridors program have a right to payment from the government AND damages for unpaid amounts. https://t.co/PjODO35oKe

— Mark Joseph Stern (@mjs_DC) April 27, 2020

This was an easy case. Only Justice Alito dissented, complaining that the court mandates "a massive bailout for insurance companies that took a calculated risk and lost." Dude really hates the ACA! https://t.co/PjODO35oKe

— Mark Joseph Stern (@mjs_DC) April 27, 2020

For those asking "is this a big deal" or "is this a tea leaf"—it's a big deal if you're a health insurer who's about to get a billion-dollar payout. Legally, though, this was a very easy, relatively uncontroversial case that doesn't really bear on the other Obamacare challenges.

— Mark Joseph Stern (@mjs_DC) April 27, 2020

Here's how the ruling closes:

In establishing the temporary Risk Corridors program, Congress created a rare money-mandating obligation requiring the Federal Government to make payments under §1342’s formula. And by failing to appropriate enough sums for payments already owed, Congress did simply that and no more: The appropriation bills neither repealed nor discharged §1342’s unique obligation. Lacking other statutory paths to relief, and absent a Bowen barrier, petitioners may seek to collect payment through a damages action in the Court of Federal Claims.

These holdings reflect a principle as old as the Nation itself: The Government should honor its obligations. Soon after ratification, Alexander Hamilton stressed this insight as a cornerstone of fiscal policy. “States,” he wrote, “who observe their engagements . . . are respected and trusted: while the reverse is the fate of those . . . who pursue an opposite conduct.” Report Relative to a Provision for the Support of Public Credit (Jan. 9, 1790), in 6 Papers of Alexander Hamilton 68 (H. Syrett & J. Cooke eds. 1962). Centuries later, this Court’s case law still concurs.

The judgments of the Court of Appeals are reversed, and the cases are remanded for further proceedings consistent with this opinion.

It is so ordered.

As I explained last November, on the one hand, this doesn't officially mean anything for the average person in the near future. The insurance carriers will receive a buttload of money owed to them years ago, of course, so they and their shareholders will be happy, as will the creditors of the ones which have since gone belly-up, but for the average Joe it wouldn't seem to mean a whole lot. Furthermore, I assume it'll take a few more months for the Court of Federal Claims process to play itself out, and it could be after the November election or even sometime in 2021 before the payments are actually made to the carriers.

In the long term, however, this ruling is still extremely important for three major reasons:

FIRST, as I explained last November, it's possible that a big chunk of that $12 billion windfall will end up being rebated to several million ACA exchange enrollees in the end anyway thanks to the ACA's Medical Loss Ratio provision. There's a lot of variables and caveats involved, including not knowing how the revenue will be recorded (will it be on a "cash basis", in which case it'll be a one-time revenue spike for 2021? Or will it be recorded via accrual accounting, in which case the carriers would have to go back and adjust their financial records from 2015, 2016 & 2017?

If it's the former, then millions of people enrolled in an ACA exchange plan in 2021 could see massive MLR rebate checks showing up in 2022, 2023 and 2024. After all, as I noted a week or so ago, the 2021 MLR payments are already expected to be huge to begin with, and I assume they'll be pretty robust in 2022 as well.

If it's the latter, then it'll get extremely messy and convoluted. Someone who was enrolled in, say, a Blue Cross Blue Shield policy back in 2015 might receive a small MLR rebate payment in 2022 even if they dropped their BCBS policy and moved to other coverage in 2016. It could get very weird.

Even then, it's not gonna be the entire $12 billion which gets rebated to enrollees either way. Not every carrier was owed money in the first place, and even those which were won't necessarily have to pay all/any of it back. Remember, the MLR rule says that a carrier has to pay back revenue if it pulls it below the 80% MLR threshold--that is, they have to spend at least 80% of their revenue on actual medical claims and pay back the difference.

If a carrier was at 95% MLR, the money they get paid from the Risk Corridor fund might only pull them back to 85%, in which case they don't have to rebate anything. Or it might drop them to 78%, in which case they only have to pay a portion of their settlement back out. Furthermore, a couple dozen smaller carriers went bankrupt and were dissolved way back in 2015...for them the money will presumably go to their creditors, or as Dave Anderson noted:

Most of the bankrupt co-ops sold their RC account receivables to hedge funds. Anyways if they were in an RC position, they were so far in the hole for MLR it would not matter.

— David Anderson (@bjdickmayhew) April 27, 2020

Still, even 1/10th of the $12 billion would amount to $1.2 billion being rebated to policyholders, which is still a big chunk of change. It's a nice thing to keep an eye out for, anyway.

SECOND, this could lend some important insight into how the SCOTUS rules on the big #TexasFoldEm lawsuit. After all, it'd be awfully ironic if the U.S. Supreme Court ruled 8-1 in favor of upholding a major provision of the Affordable Care Act in April only to strike down the entire law (including both Risk Corridor payments and MLR rebate payments) in October. As David Anderson just noted:

Reading through the Risk Corridor majority opinion (8 votes for), I wonder if the following language on repeal by implication is a tea leaf for Texas?

Given the Court’s potent presumption in the appropriations context, an implied-repeal-by-rider must be made of sterner stuff.

— David Anderson (@bjdickmayhew) April 27, 2020

Of course anything's possible, so we'll have to see.

THIRD, there's also the larger issue which goes far beyond the ACA itself, addressed by this line from the ruling:

These holdings reflect a principle as old as the Nation itself: The Government should honor its obligations.

The Supreme Court decision is about more than risk corridors. As @nicholas_bagley and I wrote about many years ago, it's a small step back towards U.S. government being a reliable counterparty.

Regardless of your political beliefs, you should want that. https://t.co/ucMm0eHrBh

— Craig Garthwaite (@C_Garthwaite) April 27, 2020