So much for that: No, insurance carriers won't be able to buy the damn border wall after all.

Welcome to the latest chapter in the long, epic CSR Lawsuit Saga which has been slogging along for six years now.

Here's a quick recap (again):

  • The ACA includes two types of financial subsidies for individual market enrollees through the ACA exchanges (HealthCare.Gov,, etc). One program is called Advance Premium Tax Credits (APTC), which reduces monthly premiums for low- and moderate-income. The other is called Cost Sharing Reductions (CSR), which reduces deductibles, co-pays and other out-of-pocket expenses for low-income enrollees.
  • In 2014, then-Speaker of the House John Boehner filed a lawsuit on behalf of Congressional Republicans against the Obama Administration. They had several beefs with the ACA (shocker!), including a claim that the CSR payments were unconstitutional because they weren't explicitly appropriated by Congress in the text of the Affordable Care Act (even though the program itself was described in detail, including the payment mechanism/etc.)
  • A long legal process ensued, the end of which resulted in a federal judge ruling in the GOP's favor and ordering that CSR payments stop being made...but also staying that same order pending appeal of her decision by the Justice Department (then still run by the Obama Administration).
  • After Donald Trump took office and placed Jeff Sessions into power as Attorney General, he started publicly threatening to "blow up"/destroy the ACA exchanges by "cutting off" CSR payments. He did this month after month from around March 2017 through October 2017, when he finally made good on his having the Justice Dept. drop the appeal of the court decision on the CSR lawsuit.

It's important to note that Trump wasn't citing the Rule of Law or the importance of respecting the Constitution; he simply hated "Obamacare" and felt the GOP-controlled Congress wasn't repealing the ACA quickly enough for his tastes, so he decided to damage it as much as he could himself by cutting off CSR payments. That's not remotely up for debate; he stated so explicitly in multiple tweets and public statements.

  • This led to September 2017 being the last month that CSR payments were made.

All of this was Act I. Here's Act II:

  • The way the CSR program works is a bit unusual. Unlike premiums, which are a set, known dollar amount for every enrollee each month, the CSR program involves deductibles & co-pays, which can vary greatly from month to month. Therefore, instead of subsidizing the enrollees directly, the insurance carriers are contractually required to cover the given portion of the enrollee's deductibles, co-pays etc. up front, and then submit their CSR expenses to the federal government on a monthly basis to be reimbursed.
  • Donald Trump cut off contractually-required CSR reimbursement payments to insurance carriers in October 2017...and hasn't made any payments since.
  • That means insurance carriers were effectively stiffed for October, November and December CSR payments in 2017...totalling upwards of $1.6 billion collectively.

In other words, instead of hurting low-income enrollees as he intended to do, Trump ended up stiffing federal contractors out of legally-owed payments, which is pretty much par for the course.

  • They were also stiffed out of 2018 CSR reimbursements (and 2019...and 2020...and...) as well. The cut-off is now permanent unless and until either the entire ACA is struck down or Congress adds a simple one-paragraph clause to the ACA explicitly appropriating the CSR reimbursement payments.
  • The Trump Administration assumed that this would lead to every insurance carrier refusing to renew their ACA exchange contracts for 2018 and beyond, since doing so would mean agreeing to shell out billions of dollars per year in CSR payments knowing that they'd never get paid back. This is what Trump meant by "blowing up the exchanges" (though it's also likely that he thought cutting off the payments would mean CSR enrollees would have their financial assistance cut off immediately). If no carriers participated in the exchanges, he would have effectively destroyed the individual market without ever needing the ACA itself to be formally repealed.

HOWEVER, something happened which Trump and his cronies never anticipated: The insurance carriers, state-based ACA exchanges and state insurance commissioners put their heads together and implemented a very smart workaround to make up for their CSR losses which had been originally described by analysts at the Urban Institute: Silver Loading.

The carriers basically calculated how much they expected to have to shell out in CSR payments the following year...and then added that amount to their premiums for the following year. So, let's say a carrier expected to have 50,000 enrollees, and they expected to have to pay out $12 million in CSR payments for the upcoming year. They divided that in to 12 months, then divided it by the 50K enrollees, which means they tacked on an extra $20/month to everyone's premiums ($20 x 12 x 50K = $12 million). This is called Broad Loading.

Silver loading involves concentrating the CSR costs so that it's only added to the silver plans on the ACA market (as opposed to Bronze, Gold or Platinum). This meant that instead of every plan going up $20/month, the Silver plans might go up $60/month while the other metal tiers don't go up at all. The benefit to this is that the other subsidy program (APTC) is based on the cost of the benchmark Silver plan...but the subsidies can be applied to any plan.

This resulted in many subsidized ACA exchange enrollees receiving more financial help than they would have otherwise, since a Bronze or Gold plan would now cost far less (in some cases, a Gold plan would cost less than a Silver plan, while a Bronze plan might be available for $0 net premium at all).

This meant that the carriers got to be made whole on their CSR losses while millions of enrollees received more financial help and thus had lower net premiums for their policies....which meant that for the most part, the insurance carriers agreed to stick around for 2018, 2019 and beyond after all.

HOWEVER...none of this did anything to make up for their losses for the last quarter of 2017 (again, roughly $1.6 billion) they filed a bunch of federal lawsuits to force the government to pay them back (it also didn't do anything for several million unsubsidized ACA enrollees who ended up having to either eat the full cost of the CSR load or who were forced to upgrade/downgrade their policies from Silver to Gold or Bronze to avoid getting hit with the cost, but that's another story).

That brings me to Act III:

...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.

The lawsuits regarding the last 3 months of 2017 were about as open & shut as you could make them. The federal government legally owed the carriers that money, and the fact that there was a different lawsuit regarding who was authorized to make the payments didn't change that fact, any more than Comcast is gonna let you off the hook for your cable bill just because you get fired from your job. The carriers winning their lawsuits was hardly unexpected.

THIS, however, was very unexpected:

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

— Amy Lotven (@amylotven) February 16, 2019

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...

Yes, that's right: Multiple federal judges ruled that not only did the federal government owe the carriers the $1.6 billion from 2017, they still owed them billions of dollars for 2018 as well even though the carriers had already baked that money into their 2018 premium pricing (and 2019...and 2020...and 2021, so far).

As the ruling explained:

...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.

As I explained at the time:

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.

On the surface, this appeared to set the stage for insurance carriers to massively double-dip...racking up a good $10 billion/year in CSR payments on top of another $10 billion/year in jacked-up premium payments. As U of M Law Professor Nicholas Bagley put it at the time...

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

HOWEVER...that brings me to the ACA's Medical Loss Ratio rule, which states that insurance carriers on the individual market can only make a 20% gross margin. That is, they have to spend at least 80% of their annual revenue on actual medical claims, leaving only 20% at most for administrative overhead, marketing, net profits and so on. If they fall below that ratio (on a 3-year rolling average basis), they have to pay out the difference to the policyholders in the form of rebate checks.

In other words, if an insurance carrier was right around the 80% threshold and suddenly had $100 million in extra revenue drop in their laps, they'd have to pay most of that back to their enrollees (the exact formula gets a bit complicated, so it might not be all of it, but a large chunk).

I speculated about this exact possibility:

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.

That was back in February 2019...a year and a half (or a lifetime and a half) ago.

That brings me up to the latest development, which is...a bit anticlimactic. Via Christen Linke Young:

The Federal Circuit released a decision today on cost-sharing reductions (CSRs) under the ACA. I've seen it described as a win for issuers, but it strikes me as an extremely qualified win.

— Christen Linke Young (@clinkeyoung) August 14, 2020

The court held that issuers can recover the CSRs they were not paid in the last few months of 2017, when the Trump Administration abruptly cut off payment. For 2018 and later, they can recover, but their damages must be reduced to reflect the benefits they got from silverloading.

— Christen Linke Young (@clinkeyoung) August 14, 2020

The cases are remanded to lower courts for these damages calculations. That process is likely to be extremely messy and uncertain (not to mention time-consuming and expensive). Seems clear the winning strategy for issuers and states is to continue silverloading.

— Christen Linke Young (@clinkeyoung) August 14, 2020

Basically, the issuers are going to be compensated for losses caused by the sudden nature of the Trump Administration's decision, but going forward, I don't expect changes for 2021 premiums. Opinion here:

— Christen Linke Young (@clinkeyoung) August 14, 2020

As my friend & colleague Dave Anderson put it...

#thread #silverload CSR litigation continues with 2017 Q4 paid to insurers & lots of lawyers and actuaries billing more hours to get a net damages estimate for 2018

— David Anderson (@bjdickmayhew) August 14, 2020

In short, while there may be some exceptions, after collecting their 2017 winnings, the odds are that the vast majority of insurance carriers are unlikely to go through all the additional hassle & expense of bothering to figure out whether they'd be better off going after the 2018/beyond CSR payments or just leaving well enough alone, since they could shell out a bunch of billable time to their lawyers/actuaries/accountants only to conclude that the actual CSR payments are exactly the same (or even less) than the amount they brought in from #SilverLoading instead.

Furthermore, even if there are a few carriers which end up coming out ahead (because they underestimated the CSR costs when they #SilverLoaded), they still might have to pay out a chunk of the reduced payments in the form of additional MLR rebates anyway.

Then again, this saga has gone through so many twists and turns over the past six years, who knows? There could be some new factor which pops up after all.

Stay tuned...