Risk corridor ruling could lead to $2.8 billion payout for insurers

A federal judge has ruled in favor of Oregon health insurer Moda Health in its lawsuit against the federal government over unpaid risk corridor payments included in the Affordable Care Act (ACA). The decision could open the floodgates for new insurer lawsuits to recoup some of the billions of dollars owed under the program.

Moda was one of several insurers to sue over the program, one of the mechanisms designed to shield ACA exchange insurers from losses in the first years of the new market.

Congress, however, said after the ACA was passed that the program had to be budget-neutral. with far more companies requesting money than paying into the program, the agency was only able to fulfill 12.6 percent of what insurers requested in its first year. The last update said the agency was still working through the backlog of unpaid requests from 2014.

While at least one similar lawsuit was tossed out of court, Judge Thomas Wheeler ruled that the program is not required to be budget-neutral and the government is liable for the withheld payments.

“The government made a promise in the risk corridors program that it has yet to fulfill,” Wheeler wrote in his ruling. “Today, the court directs the government to fulfill that promise. After all, to say to (Moda), 'The joke is on you. You shouldn't have trusted us,' is hardly worthy of our great government."

In Moda’s case, it would be owed $214 million for 2014 and 2015, with 2016 requests expected by the middle of this year. If CMS were compelled to pay the full amount insurers requested, it would be on the hook for nearly $2.8 billion just for 2014.

Wheeler’s ruling said CMS would have to make these payments as soon as possible. In rejecting many of the government’s arguments, he dismissed the claim that the government has discretion over the payment schedule, saying the ACA intended risk corridor payments to be made annually.

The next step in the case is a status hearing on March 1 where Wheeler expects to hear how both sides wish to proceed.

For the larger insurance industry, there’s no certainty payments will be coming anytime soon. Dawn Bonder, former CEO of Health Republic, the lead plaintiff in a separate risk corridor suit, welcomed the Moda ruling, but expected the Trump administration to appeal.

“It's great news, I'm very happy," Bonder said to The Oregonian. "But it's not over."