MAJOR UPDATE: "If this holds up on appeal, insurers could buy us the damn border wall."

Note: Huge props to Amy Lotven for breaking this story.

I've written about the CSR Saga so many times that I'm getting tired of explaining the backstory. However, once again, here's the short version:

Once again, the very short version is this:

  • The contract insurance carriers sign when they offer policies on the ACA exchanges is to cover a chunk of low-income enrollee deductibles, co-pays and other out-of-pocket costs which would normally be the enrollees' responsibility. These are called Cost Sharing Reductions (CSR).
  • The carriers then submit their CSR invoices to the federal government, which is supposed to reimburse the insurance carriers every month.
  • Donald Trump cut off contrctually-required CSR reimbursement payments to insurance carriers in October 2017...and hasn't made any payments since.

(I'm not going to rehash how Trump was able to cut off those payments with a Thanos-like snap of his fingers; suffice to say it's connected to a lawsuit filed so long ago that John friggin' Boehner was still Speaker of the House at the time).

  • That means insurance carriers were effectively stiffed for October, November and December CSR payments in 2017...totalling upwards of $2 billion or so collectively.
  • However, Silver Loading/Switching didn't do anything to make up their losses for the last three months of 2017.
  • Therefore, they sued.

You may not give two hoots about the $2 billion that the carriers lost in the final quarter of 2017 as a result of the CSR cut-off, but you absolutely should care if you were one of several million people who were enrolled in an individual market policy last year, earned more than 400% of the Federal Poverty Level and weren't fortunate enough to be able to take advantage of the Silver Switcharoo workaround...because it means you had to shell out a whopping ~$780 apiece on average more in 2018 as a result.

OK, got all that? Good.

Now, most of the above is taken directly from my previous CSR lawsuit post in January. At the time, I was noting that the decisions on the first of these cases were starting to trickle in, and so far it was smiles all around for the insurance carriers:

...Several health insurers have sued the U.S. government over its failure to make cost-sharing reduction payments that help lower healthcare costs for certain consumers. One just scored the first victory. The U.S. Court of Federal Claims ruled in favor of Montana Health Co-op, which sued the federal government for $5.3 million in unpaid cost-sharing reduction payments, finding that the government violated its obligation under the Affordable Care Act when it stopped paying the CSRs in October 2017."

...With many of these cases now resolved, this post focuses on the status of lawsuits brought by insurers for unpaid CSRs. These lawsuits began as early as November 2017 when Common Ground Healthcare Cooperative, an insurer based in Wisconsin, amended its class action lawsuit on risk corridor payments to additionally contest the government’s failure to make CSR payments. This was followed by separate challenges from several other insurers.

To date, two insurers—Maine Community Health Options and Sanford Health Plan—have succeeded in their challenges. ...The federal government intends to appeal both cases to the Federal Circuit, and the cases will likely be consolidated on appeal.

So that's where things stood a month ago. Today, however, there were several additional developments...including one hell of a twist in one of the lawsuits:

Two more insurers won cases against the federal government this week over unpaid cost-sharing reduction payments. Maine Community Health Options won today; L.A. Care won yesterday.

— Shelby Livingston (@MHShelbyL) February 15, 2019

Hmmm...I'm not sure what the status is re. Maine Community Health Options, since the January article made it sound like they had already won their case a few months back, but I presume it just successfully reached the next stage of the process. The L.A. Care lawsuit I wasn't up to speed on. From Modern Healthcare:

Two more health insurers won lawsuits against the federal government this week to recover unpaid cost-sharing reduction payments. Judge Margaret Sweeney in the U.S. Court of Federal Claims on Friday ruled that the federal government owes Maine Community Health Options the CSRs that it failed to pay in 2017, which the insurer said amounts to $5.7 million. And on Thursday, Judge Thomas Wheeler of the same court similarly ruled that the federal government must reimburse L.A. Care Health Plan for about $6 million in unpaid CSR payments.

That's $17 million in back payments ruled for the insurance carriers so far, along with whatever Sanford Health Plan is owed. In addition, there was a third win today for another carrier...the first one which filed, mentioned above:

Make that THREE insurers this week! A federal judge also ruled in favor of Common Ground Healthcare Cooperative in another CSR lawsuit--that one has class-action status.

— Shelby Livingston (@MHShelbyL) February 15, 2019

By my count that's five carriers which have been successful in their CSR lawsuits (Montana, Common Ground, L.A. Care, Maine CHO & Sanford Health), although all of them are almost certain to be appealed if they haven't been already.

That brings me to the biggest eyebrow-raiser:

Court: Feds Must Pay Community Health Options CSRs For 2017, 2018

— InsideHealthPolicy (@InHealthPolicy) February 15, 2019

Fed court says CHC can get CSRs reimbursed for 2017 AND for 2018 despite silver-loading..

— Amy Lotven (@amylotven) February 16, 2019

Yes, that's right:

Court: Feds Must Pay Community Health Options CSRs For 2017, 2018

The insurance industry notched a win Friday with a federal judge ruling that the Trump administration violated the Affordable Care Act and breached an implied contract when it cut off cost-sharing reduction payments and is responsible for reimbursing Texas non-profit plan Community Health Choices, Inc. (CHC) for not only the fourth quarter of 2017, but also for 2018, despite the silver-loading workaround that resulted in higher premium tax credits. The ruling followed a Thursday hearing, and the parties are asked...

Before anything else, I should note that the headline of the Inside Health Policy article (as well as the first tweet) appears to be erroneous--this particular lawsuit was filed by the Texas-based Community Health Choices, not the Maine-based Community Health Options mentioned above. Easy mistake to make, I suppose, since Maine CHO also won their CSR lawsuit...

The rest of the article is behind a firewall, but I have a copy of the actual court decision thanks to Amy Lotven...and it's that reference to 2018 CSR payments which is the jaw-dropper.

From the decision itself:

...the court is unpersuaded by defendant’s related contention that insurers’ ability to increase premiums for their silver-level qualified health plans to obtain greater premium tax credit payments, and thus offset any losses from the government’s nonpayment of cost-sharing reduction reimbursements, is evidence that Congress did not intend to provide a statutory damages remedy for the government’s failure to make the cost-sharing reduction payments.

...Defendant does not identify any statutory provision permitting the government to use premium tax credit payments to offset its cost- sharing reduction payment obligation (even if insurers intentionally increased premiums to obtain larger premium tax credit payments to make up for lost cost-sharing reduction payments). Nor does defendant identify any evidence in the Affordable Care Act’s legislative history suggesting that Congress intended to limit its liability to make cost-sharing reduction payments by increasing its premium tax credit payments. That insurers and states discovered a way to mitigate the insurers’ losses from the government’s failure to make cost-sharing reduction payments does not mean that Congress intended this result.

Moreover, defendant’s concern that Congress could not have intended to allow a double recovery of cost-sharing reduction payments is not well taken. The increased amount of premium tax credit payments that insurers receive from increasing silver-level plan premiums are still premium tax credit payments, not cost- sharing reduction payments. Indeed, under the statutory scheme as it exists, even if the government were making the required cost-sharing reduction payments, insurers could (to the extent permitted by their state insurance regulators) increase their silver-level plan premiums; in such circumstances, it could not credibly be argued that the insurers were obtaining a double recovery of cost-sharing reduction payments. While the premium tax credit and cost-sharing reduction provisions were enacted to reduce an individual’s health-care-related costs (to obtain insurance and to obtain health care, respectively), they are not substitutes for each other.17

Fourth, it would defy common sense to conclude that Congress obligated the Secretary of HHS to reimburse insurers for their mandatory cost-sharing reductions without intending to actually reimburse the insurers. If Congress did not intend to create such an obligation, it would not have included any provision for reimbursing cost-sharing reductions in the Act.

In sum, Congress’s failure to include any appropriating language in the Affordable Care Act does not reflect congressional intent to preclude liability for cost-sharing reduction payments. This conclusion, however, does not end the court’s analysis because defendant also argues that Congress’s subsequent failure to appropriate funds to make cost-sharing reduction payments through annual appropriations acts or otherwise signals congressional intent to foreclose liability.

Did you follow all of that? Basically, the judge is saying that while the #SilverLoading workaround is very clever and does solve the problem on paper, it doesn't make any difference legally or contractually. The federal government owes the insurance carriers the CSR reimbursement payments for 2018 regardless of whether they found another way to cover their CSR expenses.

Put another way: Let's say you agreed to sell your car to me for $20,000, and separately agreed to sell me 4 motorcycles for $5,000 apiece, for a grand total of $40,000. Let's further suppose that for whatever reason, I decided that I wasn't able to cut you the check for the $20,000, but told you I'd pay you twice as much ($10,000) for each of the motorcycles instead.

On paper, you're still receiving a total of $40,000...but legally, this judge is saying, I'd still owe you the $20,000 for the car as well, since that's what the contract we signed for the car sale stated.

Sure enough, in the decision:

3. Plaintiff Is Entitled to Recover Unpaid Cost-Sharing Reduction Reimbursements

Plaintiff seeks to recover the cost-sharing reduction payments that it has not received since the government decided to stop making them in October 2017. As noted above, plaintiff has established that the government is obligated to reimburse it for its cost-sharing reductions pursuant to 42 U.S.C. § 18071(c)(3)(A) and that the government stopped making such reimbursements in October 2017. Accordingly, at a minimum, it is entitled to recover the cost- sharing reduction payments that the government did not make for 2017.

Again: The lost CSR payments from the last 3 months of 2017 are completely reasonable by any standard. However...

With respect to 2018, defendant contends––as discussed above, albeit in the course of arguing that the structure of the Affordable Care Act reflects a congressional intent to preclude cost-sharing reduction payments absent an appropriation for that purpose––that plaintiff’s ability to increase the premiums for its silver-level qualified health plans to obtain greater premium tax credit payments precludes recovery under the Act’s cost-sharing reduction provision. Specifically, defendant asserts that the statutory scheme enacted by Congress permits insurers to make up any lost cost-sharing reduction payments by increasing silver-level plan premiums, which would prevent monetary injury to insurers. Defendant also expresses concern that allowing insurers to both obtain greater premium tax credits and obtain a judgment for their lost cost-sharing reduction payments would provide an unwarranted windfall for insurers. As noted above, the court is not convinced by defendant’s arguments. Accordingly, it finds that plaintiff may recover the cost-sharing reduction payments that the government did not make for 2018.


For the reasons set forth above, the court concludes that the government’s failure to make cost-sharing reduction payments to plaintiff violates 42 U.S.C. § 18071 and constitutes a breach of an implied-in-fact contract, but does not constitute a breach of an express contract. Therefore, it GRANTS IN PART and DENIES IN PART plaintiff’s motion for summary judgment and GRANTS IN PART and DENIES IN PART defendant’s motion to dismiss. By no later than Thursday, February 28, 2019, the parties shall file a joint status report indicating the amount due to plaintiff for its unpaid cost-sharing reduction reimbursements, taking care to separately indicate the amount due for 2017 and the amount due for 2018. If the parties are unable to provide the amount due for 2018, they shall (1) suggest a deadline for providing the court with that information and (2) indicate whether an RCFC 54(b) judgment limited to the cost-sharing reduction claim for 2017 would be appropriate. If the parties are able to provide the amount due for 2018, the court will direct the entry of judgment on plaintiff’s cost-sharing reduction claim for 2017 and 2018 pursuant to RCFC 54(b).

And there you have it: Judge Sweeney just ordered that Community Health Choices is entitled to be reimbursed for all of the CSR funds they paid out in 2018 even though they jacked up their premiums to cover that amount.

Obviously this will be immediately appealed by the Trump Administration, and I find it hard to believe that this particular decision would become precedent for all fo the other CSR cases, but let's suppose, hypothetically, that the decision held and applied to every carrier in every state for 2018's CSR payments. What would that potentially mean?

Well, I think the carriers collectively shelled out around $10 billion in CSR expenses to enrollees last year, give or take, so it's conceivable that the carriers would get to double-dip to the tune of $10 billion from the federal government.

As U of M law professor and ACA expert Nicholas Bagley put it:

If this holds up on appeal, insurers could buy us the damn border wall. And they could do the same next year, and the year after, and the year after...

— Nicholas Bagley (@nicholas_bagley) February 16, 2019

Of course, Bagley is being somewhat tongue-in-cheek here, because he knows about one important caveat: The ACA's MLR rule.

Remember, the ACA has a provision which limits the amount of gross profit that insurance carriers can make to either 15% (for the large group market) or 20% (for the small group and individual markets). This is called the 80/20 Medical Loss Ratio (MLR) rule, and it states that carriers have to spend at least 80% of their revenue on actual healthcare claims from enrollees. If they spend any less than that, they have to pay back the difference in the form of rebates to the policyholders.

The MLR rule has been extremely successful. It went into effect back in 2011 (long before individual market policies had to even be ACA compliant), and has resulted in insurance carriers paying back nearly $4 billion since then...around $565 million per year on average.

Assuming every carrier was at or below the 80% MLR threshold in 2018 and every one of them successfully arranged to effectively "double dip" and got the federal government to pay them their full 2018 CSR reimbursements on top of their jacked-up Silver premiums, it's conceivable that the carriers would then be forced to turn around and rebate the full $10 billion to their policyholders.

That would be 2.5x as much rebate money in a single year as the MLR rule has paid back to enrollees in the previous seven years.

I'm not sure of the details on how those MLR rebates are allocated, but I know in 2018, nearly 6 million people received an average rebate of $119 apiece. Most of that came from the large and small group markets, but around 1 million people on the ACA individual market received $137 apiece (around $133 million total). That's right: It's theoretically possible that the carriers could have to dole out up to 75 times as much in MLR rebates for 2018 as they did last year.

Realistically, this is almost certainly not going to happen. Even if it survives the appeal, and even if it somehow ended up applying to every carrier, not all of them hit the 80% MLR mark, so the total would be less than $10 billion. In addition, as healthcare actuary Rebecca Stob noted:

Carriers could decline to file for it if it would cause MLR rebates - CSR reimbursement is not automatic

— rebeccastob (@rebeccastob) February 16, 2019

In other words, the carriers would have to actually go through the process of requesting/demanding their 2018 CSR payments...and while that might seem like a no-brainer, why would they bother to do so if they knew they'd just have to turn around and pay it all back to their enrollees anyway?

My guess is that the only carriers which would do so are the ones who are above 80% MLR to begin with...if they're at 85%, they would probably file for enough federal reimbursements to get them down to the 80% mark, but no more than that.

Still, it's an absurdly fun thought experiment, and the latest twist in the increasingly absurd CSR sage.

UPDATE 2/17: Welp. So much for this being a single, isolated case:

@charles_gaba @xpostfactoid @rebeccastob @ASlavitt @nicholas_bagley There’s more: Judge Sweeney also ruled in favor of Wisconsin’s Common Ground —the class action w/91 (or so) issuers. Same arguments: plans also get 2017/2018 $$$!

— Amy Lotven (@amylotven) February 17, 2019

This ruling just went from one carrier to, by my count, 92 different insurance carriers across multiple states.

But wait, there's even more:

She also ruled in favor of Maine Health Options. They had only asked for 2017: so they immediately amended their complaint (story to come but not posted yet). Separately Fed Judge Wheeler ruled in favor of LA Care they also only asked for 2017 but plan to amend.

— Amy Lotven (@amylotven) February 17, 2019

In other words, at least two of the insurance carriers which had only requested CSR payments for the last 3 months of 2017 are ADDING 2018 CSR payments as well in response to Judge Sweeney's ruling.

Again, the odds of this being upheld on appeal are probably slim, but if it does hold, it could have huge implications. Furthermore, the point Rebecca Stob made about carriers being unlikely to bother going through the trouble of filing for the 2018 payments since most of it would have to be doled out to policyholders anyway appears to be on shakey ground if carriers which hadn't even asked for the 2018 payments before are already tacking it onto their legal requests.

It's also worth noting that MLR rebates are actually broken out over a three year rolling average. That means the hypothetical $10 billion wouldn't be applied only to 2018 would be split into thirds.

In other words, 2018 MLR rebates paid out in 2019 will be based on the carrier's average MLR in 2016, 2017 and 2018; the 2019 rebates will be based on 2017, 2018 and 2019; and the 2020 rebates will be based on 2018, 2019 and 2020.

If I'm understanding this correctly, it means that the "double dipping" for 2018 could also be used by carriers to cover any 80% MLR overages in 2016 (when a lot of carriers lost money on the ACA market) and 2017 as well. This would explain why they're willing to file for it after all.

UPDATE x2: It looks like the amount of money potentially at stake here is even more than I estimated above:

Just holding this @USCBO report with an estimate of paying CSR is ~12 billion/year 2018-2021 which is the amount of money at risk for the CSR cases@nicholas_bagley @onceuponA @LouiseNorris @xpostfactoid @charles_gaba @amylotven @wcsanders

— David Anderson (@bjdickmayhew) February 17, 2019

Not all 13 million or so people on the ACA-compliant individual market would be likely to share in this $12 billion/year windfall, but if they did, that'd average out to around $920 apiece. Stay tuned...