BREAKING: Government Agrees It Should Pay Money It Legally Owes!

As noted by Nicholas Bagley, Richard Mayhew and myself several times over the past year, Marco Rubio's Risk Corridor Massacre, which cut the ACA's risk corridor program off at the knees back in December 2014, has caused a tremendous amount of damage to the country in the form of helping kick 800,000 people off their healthcare policies, putting several hundred people out of work and could potentially cost taxpayers several billion dollars more than it would have cost if the program hadn't been interfered with in the first place...for no reason whatsoever. Rubio can't even argue that it was worth it for his own personal gain, since his stunt didn't even gain him the Republican Presidential nomination.

As a quick refresher: The RC program is one of the "3 R's" established by the ACA which was designed to help smooth things over for insurance carriers during the bumpy initial years of the program, as they entered uncharted waters. Lasting only for the first 3 years, the RC program basically stated that any carriers which made more than a certain amount of profit in the individual market would have to put that money into a collective pool, which would then be used to reimburse any carriers which suffered from more than a certain amount of losses. Call it an insurance policy for insurance carriers, if you will. I'm sure I'm oversimplifying it, but that's the gist of how it was supposed to work.

Here's where it got interesting: If more money went into that pool than went out each year, the federal government would get to keep the difference. There was even one point where some of those involved thought the government might make a profit off of the deal.

The catch, however, is that if more money had to be paid out than came in, then the feds would have to cover the balance.

This is the key to what happened next. Marco Rubio pushed through an amendment to the December 2014 "CRomnibus bill" (one of those Must-Pass No Matter What continuing resolution bills needed to, you know, fund the federal government) which prevents the HHS Dept. from making good on any shortfall in the RC program. The carriers (and the Obama administration) were left basically crossing their fingers and hoping that when the dust settled on the 2014 numbers, the program would end up bringing in more than it paid out, rendering Rubio's stunt moot.

Yeah, well, that didn't happen. 2014 ended up with around $2.9 billion in qualifying losses, while only around $360 million in qualifying profits came into the program. The HHS Dept. was only able to pay out about 13¢ on the dollar, leaving several dozen carriers left holding the bag.

Making matters worse, the change had happened in the middle of the second Open Enrollment period, meaning that it was far too late for the carriers to adjust their actuarial assumptions (or rates) for 2015...and the actual announcement of 87% shortfall didn't come out until mid-summer of the following year, making it very difficult for many of them to adjust their rates for 2016 either.

The big guys could absorb the losses, since they already had billions in the bank and were making solid money from other divisions like managed Medicaid, Medicare Advantage, large group plans and so on. The little guys...not so much. And many of those little guys were, of course fresh-faced startups with no other revenue source outside of the individual and/or small group markets...namely, the ACA-created Co-Ops. Most were in deep trouble for a variety of reasons, and desperately needed that risk corridor money to tide them over. Once the state regulators learned that most of the reimbursement wasn't forthcoming, they pulled the plug on nearly a dozen Co-Ops, and one by one they crashed: The Risk Corridor Massacre.

However, as Bagley had noted, the wording of the ACA is pretty damned clear: The federal government is legally required to pay back those carriers what it owes them, even if Congress subsequently passed a bill rescinding their ability to do so. And, just as he predicted, several carriers (or at least whatever legal entity was still around after the carriers went belly-up) have since gone ahead and sued the federal government to get the money they're legally owed (if only to pay creditors and the like after being liquidated). And, as Bagley notes, they have an almost certain chance of winning those cases, since the law is quite clear.

The thing is, the HHS Dept. wants to reimburse them...but due to Congressional action, isn't allowed to. At the same time, the Dept. of Justice is required to defend the government against these lawsuits the best they can, even if everyone there knows the plaintiffs are in the right.

A few months back, the government's response to the lawsuits was essentially to say "Yes, we agree that we owe that money, but technically speaking, we don't have to pay back the 2014 funds until after the program wraps up in 2016...and who knows? Things may turn around when the 2015 and 2016 numbers come in, so we might be able to pay you back out of the original fund after all!"

Well, last week the 2015 numbers did indeed come in, and no, there's not enough to cover the remaining $2.5 billion from 2014, much less any additional losses from 2015:

Under the risk corridors program, the federal government shares risk with QHP issuers – collecting charges from the issuer if the issuer’s QHP premiums exceed claims costs of QHP enrollees by a certain amount, and making payments to the issuer if the issuer’s premiums fall short by a certain amount, subject to certain adjustments for taxes, administrative expenses, and other costs and payments. On April 11, 2014, HHS issued a bulletin titled “Risk Corridors and Budget Neutrality,” which described how we intend to administer risk corridors over the three year life of the program. We stated that if risk corridors collections for a particular year are insufficient to make full risk corridors payments for that year, risk corridors payments for the year will be reduced pro rata to the extent of any shortfall.

Today, HHS is announcing preliminary information about risk corridors for the 2015 benefit year. Risk corridors submissions are still undergoing review and complete information on payments and charges for the 2015 benefit year is not available at this time. However, based on our preliminary analysis, HHS anticipates that all 2015 benefit year collections will be used towards remaining 2014 benefit year risk corridors payments, and no funds will be available at this time for 2015 benefit year risk corridors payments. HHS expects to begin collection of risk corridors charges and remittance of risk corridors payments on the same schedule as last year. Collections from the 2016 benefit year will be used first for remaining 2014 benefit year risk corridors payments, then for 2015 benefit year risk corridors payments, then for 2016 benefit year risk corridors payments.

In other words, the amount of money which came into the program from carriers with excessive profits is definitely less than the $2.5 billion past-due from 2014. Let's say $500 million came in this year; that would reduce the amount still owed from 2014 to around $2 billion, plus whatever losses came in for 2015. If $2 billion comes in for 2016 next summer, that would finally wipe out what was owed for 2014...but would still leave nothing left over for 2015 or 2016.

Finally, we get to the point:

As we have said previously, in the event of a shortfall for the 2016 benefit year, HHS will explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments. HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers. HHS will record risk corridors payments due as an obligation of the United States Government for which full payment is required.

We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.

In other words: "The DoJ has to do what it can to defend us from the suit, but we want to pay you what we owe you."

As Bagley notes today:

If someone sues you for money that you owe them, shouldn’t you pay them? Under those circumstances, wouldn’t it be improper—maybe even unethical—to refuse to talk about settling?

In the meantime, there’s nothing unseemly about using an appropriation that Congress established to discharge an obligation that Congress created. Indeed, the administration has explicit authority to use the Judgment Fund to settle cases that have been filed against it.

...Plus, the government hasn’t argued that the cases can’t ever be brought. It just thinks that they’re premature. But we’re only a year away from getting a final tally on what insurers are owed under the risk corridor program, and it could take at least that long to negotiate a settlement.

Why not start talking now?

Mayhew is also feeling positive about this development:

If CMS settles and the Judgement Fund pays out, the co-ops are in far better shape as their capital cushion will have gotten so much thicker.

An early settlement won’t matter for my employer. It won’t matter for most of the Blues. It won’t matter for Cigna. It will matter for the little start-ups even if they don’t take 100% of the potential obligation as the settlement in order to get cash fast.

The good news is that in the end, the government will end up paying out the funds owed after all, rendering this entire exercise mostly a huge waste of everyone's time. The money will simply come from the DoJ's bank account instead of HHS's, that's all. This will come as welcome relief to many carriers.

Unfortunately, for a dozen co-ops (and at least one private carrier in Wyoming), it'll be, as Alanis Morissette put it, "like a death row pardon two minutes too late."

  • Arizona: Meritus Health Partners
  • Colorado: Colorado HealthOp
  • Connecticut: HealthyCT
  • Idaho/Montana: Mountain Health CO-OP (Montana Health CO-OP)
  • Illinois: Land of Lincoln Health
  • Iowa/Nebraska: CoOportunity
  • Kentucky: KY Health Cooperative
  • Louisiana: LA Health Cooperative
  • Maine: Community Health Options
  • Maryland: Evergreen Health Cooperative
  • Massachusetts/New Hampshire: Minuteman Health, Inc.
  • Michigan: Consumer's Mutual Insurance of MI
  • Nevada: Nevada Health CO-OP
  • New Jersey: Health Republic Insurance of NJ
  • New Mexico: New Mexico Health Connections
  • New York: Health Republic Insurance of NY
  • Ohio: InHealth Mutual
  • Oregon: Oregon's Health CO-OP
  • Oregon: Health Republic Insurance of OR
  • South Carolina: Consumers' Choice Health Plan
  • Tennessee: Community Health Alliance
  • Utah: Arches Mutual Insurance Company
  • Wisconsin: Common Ground Healthcare