Supreme Court Upholds Insurers’ ACA Claims

May 6, 2020

By: Patrick J. Trostle

The US Supreme Court’s recent ruling regarding the Patient Protection and Affordable Care Act, 42 U.S.C. §§ 18001 et seq. (2010) (the “ACA”), means that several health insurance companies will soon see a large payday.  Distressed debt funds that purchased insurance company claims before the ruling will also receive significant payments.  In all, the government owes over $12 billion under the decision.

On April 27, 2020, in Maine Community Health Option v. United States, case no. 18-1023, the Supreme Court held 8-1 that the US government must pay insurance companies that incurred losses on various exchanges created under the ACA.  As discussed at length in the decision, the government’s payment obligations are set forth in the ACA itself, which created economic incentives for insurers to join new healthcare exchanges by promising to reimburse insurers for losses resulting from covering previously uninsured individuals.  The law also required insurers that profited from the same exchanges to pay an amount of their profits back to the government.  In the months and years that followed, insurers that profited from the exchanges made payments to the government, but the government failed to pay amounts it owed to insurers that incurred losses in what was called the “Risk Corridors” program.

The Risk Corridors program existed from 2014 to 2016.  Later appropriations laws reduced the government’s ability to reimburse insurers for exchange-related losses, which gave rise to the insurers’ lawsuits.  While various insurer lawsuits worked their way through the lower courts with mixed results, some insurance companies sold their claims to distressed funds rather than risk nonpayment because of an adverse ruling.

The Supreme Court’s decision, written by Justice Sotomayor, held that the government cannot abandon the payment obligations it established for itself under the ACA.  More specifically, the Court stated that the government could not retroactively apply appropriations riders to reduce or eliminate its obligations to the insurers.  “In sum, the plain terms of the Risk Corridors provision created an obligation neither contingent on nor limited by the availability of appropriations or other funds,” the Court said.  The Court concluded that the insurers had the right to sue the government under the Tucker Act for unpaid claims incurred through participation in the exchanges.

Beyond confirming that the government must pay private parties when it commits to do so, the Maine Community Health decision shows that the Supreme Court appears to be in no hurry to strike down the ACA, either through direct appeals or more piecemeal efforts to defund the law.  At least in areas where the ACA is clear regarding the government’s obligations, Congress’s unwillingness to fund such obligations will not be viewed favorably by the Court, absent a repeal of the law.

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