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Insurers Face Skeptical Appeals Panel on Obamacare Payments

Jan. 9, 2020, 5:26 PM

A federal appeals court was skeptical of arguments that the government should be forced to reimburse insurance companies billions of dollars in subsidies they say they’re owed under Obamacare for reducing the out-of-pocket expenses of low-income consumers.

A panel of judges on the U.S. Court of Appeals for the Federal Circuit seemed to signal during oral arguments Jan. 9 that insurers had already recouped their expenses through additional tax credits by raising premiums.

Why should the insurers get a double recovery, Judge Timothy Dyk, a Clinton appointee, asked.

The government was appealing lower court rulings that found it had statutory and contractual obligations to make those cost-sharing reduction payments under the Affordable Care Act.

The administration, which stopped making payments in October 2017, argues Congress has to appropriate the funds in order for the payments to be made.

Sanford Health Plan, Montana Health Co-Op, Community Health Choice Inc., and Maine Community Health Options argued that a lack of funding doesn’t negate the government’s obligation to pay.

Judge William Bryson, another Clinton appointee, wanted to know if the government was arguing that every statute that provides a payment is subject to an appropriation, even if it doesn’t explicitly say so.

The administration isn’t saying Congress can’t make a payment an obligation prior to an appropriation, but the Anti-Deficiency Act prohibits the government from making payments until there is an appropriation, said Alisa Klein, an appellate attorney in the civil division at the Justice Department.

Though insurers lost money at the end of 2017, most were able to recoup their expenses in 2018 by raising prices for silver-tier Obamacare plans, a practice known as “silver loading.” An increase in silver-plan premiums triggers an increase in premium tax credits designed to lower a consumer’s monthly bill.

It’s “utterly implausible to conclude that Congress intended for insurers to collect their cost-sharing expenses twice,” the government argued in briefs.

It was an argument that seemed to resonate with the panel of judges.

If at the end of the day an insurance company got either directly or indirectly all the money it was deprived of, should it get a double recovery, Bryson asked.

The DOJ doesn’t know the total amount insurers will ultimately seek, but agency attorneys said there was about $433 million in unmade cost-sharing payments during the last quarter of 2017, and about $6.7 billion in unmade advance cost-sharing payments during the 2018 calendar year.

Sound Familiar?

The Supreme Court heard arguments over separate payments, known as risk corridors, provided by the law on Dec. 10. Insurers in that case argue the government has an obligation to pay $12 billion in funds the law promised them for insuring people on the exchanges who hadn’t previously been insured or had been uninsurable.

The insurers appeared to have an encouraging day with the justices, causing some court watchers to predict the government will ultimately be forced to pay up.

Though the Federal Circuit decided to move forward and hear arguments in the case before it over cost-sharing reduction payments, it could wait to see how the Supreme Court settles the dispute over risk corridors payments before it rules on cost-sharing reductions.

The case is Sanford Health Plan v. United States, Fed. Cir., No. 19-1290, argument 1/9/20.

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com