Case No. 18-1023 | Fed. Cir.
Preview by Sean Lowry, Online Editor*
In two consolidated cases, the Court will decide whether a temporary cap on appropriations from certain specified funding sources may be construed, based on legislative history, to abrogate the government’s payment obligations to private entities under a formulary payment statute.
The Patient Protection and Affordable Care Act (“ACA”) provided for a temporary “risk corridors” program that reimbursed insurers who offered coverage in the ACA’s newly created insurance exchanges during the first years of the ACA’s implementation from 2014 through 2016. 42 U.S.C. § 18062. These risk corridor payments were intended to encourage insurers to participate in the exchanges by offsetting potential losses sustained by the short-term addition of many new enrollees, many of whom were only able to afford insurance following the ACA’s private insurance market reforms and subsidies to lower-income households.
Congress enacted language in an appropriations bill rider at the end of 2014 that significantly limited the Center for Medicare and Medicaid Services (“CMS”) from distributing the full risk corridor payments under the ACA’s statutory formula. See Pub. L. No. 113-235, § 227. Insurers, however, had set their 2014 insurance premiums almost a year before with the assumption that they would receive the payments. Congress enacted the same appropriations rider for 2015 and 2016 in subsequent legislation. The effects of the riders could have contributed to some insurers becoming insolvent, exiting the individual exchange markets, or raising insurance premiums on enrollees in subsequent years to make up for losses in previous years in which they would have received risk corridor payments.
Dozens of insurers, like Land of Lincoln Mutual Health Insurance Co., sued the federal government in the Court of Federal Claims for violation of express or implied contracts to which the government was a party, under the Tucker Act. See 28 U.S.C. § 1491. They argued that the government is obligated to make the full risk corridor payments totaling approximately $12 billion under the ACA’s statutory formula, notwithstanding Congress’s appropriation riders. The executive branch argued that Congress has repealed the full risk corridor payments by implication, via the appropriations riders.
Although the Court of Federal Claims ruled for insurers in one case and the federal government in another, the U.S. Court of Appeals for the Federal Circuit held that Congress intended to implicitly limit the federal government’s obligation to make risk corridor payments when it enacted the appropriation riders denying the full payments. See Moda Health Plan, Inc. v. United States, 892 F.3d 1311, 1329 (Fed. Cir. 2018). The Federal Circuit also rejected the insurers’ characterization of the payments as part of a contract, saying that the payments were an incentive policy and not a quid pro quo for services rendered in a contract. See id. at 1327.
In their briefs to the Court, the parties frame the precedents on legislation by implication in appropriations riders in favor of their respective positions. Insurers also bolster their framing of the case from a contract perspective, emphasizing the insurers’ reliance on the risk corridor payments in setting premiums, and the fact that they upheld their end of the “bargain” under the ACA. The Solicitor General argues that the Federal Circuit correctly rejected the claim that an implied-in-fact contract was brokered under the ACA.
*Sean Lowry is a 3LE (Class of 2021) and Analyst in Public Finance at the Congressional Research Service (CRS). The views expressed are those of the author and are not necessarily those of the Library of Congress or CRS.