The Trump administration must make it up to health insurers for refusing to honor an Obamacare program that required it to pay them for reducing low-income members’ deductibles, copayments, and coinsurance costs, the Federal Circuit said Friday.
Up to $2.5 billion is at stake in the long-standing litigation over whether the Affordable Care Act’s cost-sharing reduction provision requires the government to reimburse insurers for foregoing costs normally passed on to members, given that Congress never set aside the money for it to do so.
The result was foreshadowed by the insurers’ April win in a U.S. Supreme Court case presenting substantially the same question, but involving Obamacare’s “risk corridor” provision—Maine Community Health Options v. United States.
The Supreme Court determined that the “risk corridor” section obligated the government to pay insurers in exchange for selling plans at affordable premiums to a group of people who previously would have been denied coverage or charged more.
The cost-sharing provision contains the same “shall pay” language found in the risk corridor section, and the U.S. Court of Appeals for the Federal Circuit found no “persuasive basis” for distinguishing the cases.
“Our clients have provided cost-sharing as required by law, and the court’s decision makes clear that the government was required to provide CSR payments in accordance with the law, Stephen J. McBrady, who represented Sanford Health Plan, Montana Health Co-Op, and Maine Community Health Options, told Bloomberg Law.
“We look forward to continuing to pursue CSR amounts owed by statute, he said. McBrady is a partner at Crowell & Moring LLP in Washington.
Maine Community Health Options was the fourth insurer involved in the appeals, which covered cost-sharing payments due to insurers in 2017 and 2018. Insurers also may be entitled to damages for 2019 and 2020, because the cost-sharing program is ongoing.
The government didn’t respond to Bloomberg Law’s request for comment. It potentially could file a petition for rehearing, a petition for rehearing en banc, or a request for Supreme Court review.
The Federal Circuit specifically rejected the government’s argument that the insurers shouldn’t be entitled to any damages because their losses were made up through a practice called “silver loading.”
As part of this practice, the insurers received states’ permission to raise premiums on mid-level, or silver, plans. Tax credits available under Obamacare to subsidize low-income members’ purchases of those plans rose accordingly.
The government’s appeal from a judgment for Sanford Health and Montana Co-op involved only the 2017 payments. Because neither took advantage of silver loading that year, they were entitled to the full amount of the cost-sharing payments the administration owed them, the court said. The lower court set those amounts at just over $360,000 for Sanford Health and $1.2 million for Montana, it said in an opinion written by Judge Richard G. Taranto.
But the damages for Community Health and Maine Community claimed for 2018 must be reduced, the court said in a second opinion—this one written by Judge Timothy B. Dyk—that resolved appeals from judgments for them. The panel’s third member was Judge William C. Bryson.
The ACA didn’t set out any express remedies for the government’s failure to honor its obligations, so the court drew one out by analogy to contract law.
Damages are compensatory in nature under contract law, meaning that the winning party is entitled only to the amount of damages necessary to put it into the position it would have been in had the contract not been breached, the court said. A winning party can’t recover an “unwarranted windfall,” it said.
The mitigation doctrine applies in this instance, the court said. The doctrine requires parties to take steps to mitigate their damages, and courts to reduce damages to reflect the benefit realized through the mitigation efforts, it said.
There was a direct relationship between the cost-sharing reductions and the premiums, as Community Health and Maine Community received additional tax credits due to the silver loading, the court said. The government thus was entitled to set off those payments against the insurers’ damages.
The court sent those insurers’ cases back to the trial court to determine the amount of damages. The same fate likely awaits other insurers seeking damages for 2018 and beyond that increased silver plan premiums.
Crowell & Moring LLP represented Sanford Health, Montana Co-Op, and Maine Community. Faegre Drinker Biddle & Reath LLP represented Community Health. The U.S. Department of Justice represented the government.
The cases are Sanford Health Plan v. United States, Fed. Cir., No. 19-1290, 8/14/20; Community Health Choice, Inc. v. United States, Fed. Cir., No. 19-1633, 8/14/20.
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