$12 Billion in Risk Corridor Payments at Risk

On December 10, 2019, the Supreme Court heard oral arguments concerning $12 billion that insurers say they are owed by the federal government as part of the risk corridor program.

The risk corridor program was one of the ACA’s three premiums stabilization programs (along with risk adjustment and reinsurance). The temporary risk corridors program was designed to run from 2014 to 2016 and meant to encourage risk-averse insurers to participate in the ACA marketplaces.

Here’s how the program was set up: If a plan’s costs were lower than it’s premiums, the plan would pay a share of it’s profits to the Department of Health and Human Services (HHS). If the plan’s costs exceeded premiums received, the plan would receive a payment from HHS for it’s excess costs. Insurers entered the marketplace under the assumption these risk corridor payments would be made to cushion extreme gains and losses.

Then two things changed.

First, HHS decided to implement the risk corridors program in a “budget neutral manner”, a shift in policy and one that was not statutorily required. This occurred after insurers had started creating marketplace qualified plans and meant that HHS would not pay out more than it received from insurers. If there were insufficient funds coming in, there would be a reduction in payments going out.

Second, in 2014 Congress passed an appropriations rider prohibiting HHS from paying out more in risk corridors payments than it collects. 
Losses exceeded profits and HHS collected far less in risk corridor payments than it owed to insurers. By 2016, HHS owed more than $12 billion, which was devastating to some insurers. A number of insurance companies sued, arguing that Congress pulled a “bait and switch” and that if Congress truly wanted to cancel the program, they should have done it by repealing the statue explicitly, not though appropriations.

The Court of Appeals for the Federal Circuit held that the four health insurers were not entitled to unpaid risk corridor payments. The Supreme Court could uphold or overturn the Federal Circuit’s decision.