Court Ruling That Feds Owe Obamacare Insurer Could Leave Gov’t On Hook For Billions

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An Oregon insurer got a leg up in a court ruling in an ongoing battle over whether the federal government owes billions to insurers who volunteered to participate in Obamacare exchanges and lost money.

A U.S. Court of Federal Claims ruled Thursday evening that the federal government owes Moda Health $214 million in risk corridor payments as promised by the Affordable Care Act. Over a dozen similar lawsuits have been filed against the government, but this the first win for an insurer, according to Axios.

Moda is one of several insurance companies currently suing the U.S. over the payments they believe were promised as part of the arrangements for participating in offering health insurance plans on Obamacare exchanges across the country. While Moda’s request was relatively small at $214 million, the total amount that insurers are owed under the risk corridor program has reached $8.3 billion, according to Modern Healthcare.

By offering subsidized coverage to anyone, including those with pre-existing conditions, insurers were concerned that Obamacare customers would be sicker than the average customer and more costly to insure. The health care law’s risk corridor program was one of several ways to limit insurers’ risk on the exchanges and encourage them to offer products.

Under the program, the Department of Health and Human Services would collect funds from insurers with lower-than-expected claims and redistribute them to companies with higher claims. Obamacare regulations specified that those with claims less than 97 percent of their target would pay into the program, while those with 103 percent of the target claims would be able to receive funds.

Problems quickly arose when not enough insurers were profitable enough on the exchanges to pay into the program, and there wasn’t enough money to go around.

The program is now seriously underwater. In 2014, the Centers for Medicare and Medicaid Services (CMS) was able to make just 12.5 percent of the promised payments for the year, paying out $362 million when insurers had requested $2.87 billion in all.

“Whether under statute or contract, the Court finds that the Government made a promise in the risk corridors program that it has yet to fulfill. Today, the Court directs the Government to fulfill that promise,” Judge Thomas Wheeler wrote in the order. “After all, to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.”

CMS argues that the program was intended to be budget-neutral; insurers counter that they were promised the funds if they participated in the exchanges, and the government owes them the money whether it comes from other insurance companies or taxpayer dollars.

The price tag for the dispute could end up figuring into the tens of millions, according to University of Michigan law professor Nicholas Bagley. After just two years, the risk corridor program is already short $8.3 billion, and if things keep going in the same direction, “total liability will certainly exceed $10 billion, and will probably be closer to $15 billion,” Bagley wrote in a blog post on the case Friday.

While Thursday’s ruling is a win for Moda, it’s not the final say in the matter. The issue is likely to be decided by a federal appeals court, as different courts have come to different conclusions on the matter. (RELATED: House Files Lawsuit Against Obamacare Bailout Of Insurance Companies) 

In November of last year, a federal claims court dismissed a similar lawsuit brought by an Illinois co-op, Land of Lincoln, ruling that the company was not entitled to the $73 million in risk corridor payments that it expected. Land of Lincoln is currently appealing the decision, and that appeals court ruling will likely determine where insurers go from here.

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