Federal appeals court says HHS doesn’t have to make ACA risk corridor payments

Legal Review
In a case brought by Moda Health, a federal appeals court ruled the government does not have to make risk corridor payments to insurers. (iStock-BrianAJackson)

A federal appeals court ruled the federal government does not have to make risk corridor payments, dealing a blow to insurers that claim they are owed billions in payments under the Affordable Care Act.

In a closely watched case brought by Moda Health Plans, the three-judge panel for the United States Court of Appeals for the Federal Circuit reversed a decision by the Court of Federal Claims, ruling that the Department of Health and Human Services is not obligated to make risk corridor payments to insurers under the ACA.

The payments were built into the ACA as a way to protect insurers from extreme gains or losses on the ACA exchanges in a market that was still untested by insurers.

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RELATED: Judge rules in favor of Moda Health in risk corridor suit

“Although section 1342 obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments, we hold that Congress suspended the government’s obligation in each year of the program through clear intent manifested in appropriations riders,” wrote Chief Judge Sharon Proust in the decision (PDF). “We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments.”

The court acknowledged the section of the ACA requiring the HHS Secretary to establish risk corridor payments is “unambiguously mandatory,” but said Congress included appropriations riders during each of the program’s three years to ensure risk corridor payments were budget neutral.

The court added that the program “lacks the trappings of contractual agreement,” rebuffing Moda Health’s argument that HHS is required to make payments.

In a statement to FierceHealthcare, Moda Health President and CEO Robert Gootee said the insurer plans to appeal the decision. 

"We are disappointed by today’s decision," he said. "If it is upheld on appeal, it will effectively allow the federal government to walk away from its obligation to provide partial reimbursement for the financial losses Moda incurred when we stepped up to provide coverage to more than 100,000 Oregonians under the ACA. We continue to believe, as our trial court did, that the government’s obligation to us is clearly stated in the law and we will continue to pursue our claim on appeal."

RELATED: Government's unpaid risk corridor tab swells to $12.3B

In a dissenting opinion, Judge Pauline Neman argued that the appropriations riders did not cancel out HHS’s obligation to make risk corridor payments. She said the court’s decision “undermines the reliability of dealings with the government.”

Dozens of insurers have sued the government to reclaim billions in unpaid risk corridor payments. Moda Health claimed it is owed $214 million, while Blue Cross Blue Shield of North Carolina filed for nearly $150 million in unpaid payments and Humana claims its owed $611 million.

In a statement following the decision, America's Health Insurance Plans said insurers expected the government to make risk corridor payments. 

“Millions of Americans rely on the individual market for their coverage and care, and they deserve a steady market that provides them with affordable choices," AHIP said. "Health insurance providers relied upon the government to make full risk corridor payments, as required by statute, just as they met other related statutory obligations during the initial years of a new program. Courts have long recognized that companies doing business with the federal government — including but not limited to health insurance providers — must be able to rely upon the federal government as a fair and reliable partner. This protects not only the interests of the private market and consumers, but also the government’s own long-term interest in maintaining strong partnerships with the private sector.”

Editor's Note: This story has been updated to include a statement from Moda Health Plans and AHIP.