A federal appeals court ruled the federal government does not have to make risk corridor payments, dealing a blow to insurers that claim they are owed billions in payments under the Affordable Care Act.
In a closely watched case brought by Moda Health Plans, the three-judge panel for the United States Court of Appeals for the Federal Circuit reversed a decision by the Court of Federal Claims, ruling that the Department of Health and Human Services is not obligated to make risk corridor payments to insurers under the ACA.
The payments were built into the ACA as a way to protect insurers from extreme gains or losses on the ACA exchanges in a market that was still untested by insurers.
“Although section 1342 obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments, we hold that Congress suspended the government’s obligation in each year of the program through clear intent manifested in appropriations riders,” wrote Chief Judge Sharon Proust in the decision (PDF). “We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments.”
The court acknowledged the section of the ACA requiring the HHS Secretary to establish risk corridor payments is “unambiguously mandatory,” but said Congress included appropriations riders during each of the program’s three years to ensure risk corridor payments were budget neutral.
The court added that the program “lacks the trappings of contractual agreement,” rebuffing Moda Health’s argument that HHS is required to make payments.
Moda Health President and CEO Robert Gootee said the insurer plans to appeal the decision.
“We are disappointed by today’s decision,” he said. “If it is upheld on appeal, it will effectively allow the federal government to walk away from its obligation to provide partial reimbursement for the financial losses Moda incurred when we stepped up to provide coverage to more than 100,000 Oregonians under the ACA. We continue to believe, as our trial court did, that the government’s obligation to us is clearly stated in the law and we will continue to pursue our claim on appeal.”
In a dissenting opinion, Judge Pauline Neman argued that the appropriations riders did not cancel out HHS’s obligation to make risk corridor payments. She said the court’s decision “undermines the reliability of dealings with the government.”
Dozens of insurers have sued the government to reclaim billions in unpaid risk corridor payments. Moda Health claimed it is owed $214 million, while Blue Cross Blue Shield of North Carolina filed for nearly $150 million in unpaid payments and Humana claims its owed $611 million.
In a statement following the decision, America’s Health Insurance Plans said insurers expected the government to make risk corridor payments.
“Millions of Americans rely on the individual market for their coverage and care, and they deserve a steady market that provides them with affordable choices,” AHIP said. “Health insurance providers relied upon the government to make full risk corridor payments, as required by statute, just as they met other related statutory obligations during the initial years of a new program. Courts have long recognized that companies doing business with the federal government — including but not limited to health insurance providers — must be able to rely upon the federal government as a fair and reliable partner. This protects not only the interests of the private market and consumers, but also the government’s own long-term interest in maintaining strong partnerships with the private sector.”
The Department of Justice on Thursday night declined to defend the Affordable Care Act in the U.S. District Court for the Northern District of Texas, instead filing a brief arguing that broad swaths of the law, including the provision compelling payers to cover those with pre-existing conditions and the individual mandate, are unconstitutional.
The brief argues the Supreme Court upheld the constitutionality of the individual mandate on the basis of the penalty being considered a tax. With Congress zeroing out the penalty starting in 2019 in the Tax Cuts and Jobs Act, the individual mandate, community rating and guaranteed issue provisions of the Affordable Care Act cannot stand, DOJ said.
The case probably will not be resolved this year, with the District Court decision likely to be appealed first to the 5th Circuit Court of Appeals and then to the Supreme Court.
DOJ’s decision is the latest in a slate of moves by the Trump administration aimed at weakening the Affordable Care Act, after failing to repeal it in Congress. Payers now face even more uncertainty as they set premiums for 2019.
Other efforts by the administration, including rulemaking around short-term, limited duration health insurance and association health plans are likely to be finalized soon.
“Although Plaintiffs speculate as to a chain reaction of failed policymaking that could occur once the individual mandate is struck down, they cannot show that striking down the individual mandate, guaranteed-issue, and community-rating requirements means that the Affordable Care Act necessarily ‘ceases to implement any coherent federal policy,’” DOJ writes.
The insurance lobby, America’s Health Insurance Plans, said that it will file an amicus brief that opposes the GOP “state plaintiffs’ request for emergency relief, and provides more detail about the harm that would come to millions of Americans if the request to invalidate the Affordable Care Act is granted in whole or in part.” The group added that 2019 premium rates are already spiking higher due to the zeroing out of the individual mandate, and that further disruption would induce more uncertainty.
“Zeroing out the individual mandate penalty should not result in striking important consumer protections, such as guaranteed issue and community rating rules that help those with pre-existing conditions. Removing those provisions will result in renewed uncertainty in the individual market, create a patchwork of requirements in the states, cause rates to go even higher for older Americans and sicker patients, and make it challenging to introduce products and rates for 2019,” AHIP said in a statement.
California Attorney General Xavier Becerra and 15 other attorneys general filed a brief opposing the lawsuit Thursday.
The CMS issued a final rule late Monday aimed at giving states and health insurers more flexibility and reducing regulatory burdens in the individual and small group health insurance markets.
The final rule allows states to define essential health benefits that individual and small group insurers must offer; gives insurers more options when reporting their medical loss ratios; and eliminates standardized plan options to maximize innovation.
In separate guidance also issued Monday, the CMS said it is expanding hardship exemptions for consumers so that people who live in counties with one or no exchange insurer will be exempt from paying the Affordable Care Act’s penalty for not having coverage.
Health insurers have anxiously been waiting for the rule, which is usually released in mid-March. It follows on the heels of other actions taken by the Trump administration aimed at easing Affordable Care Act regulations in the name of promoting consumer choice, including a proposal to extend the duration of short-term medical plans and expanding access to association health plans that don’t comply with ACA consumer protections.
“Obamacare has serious flaws that ultimately need Congressional action in order to correct, but until the law changes, we won’t stand idly by as Americans suffer, and today’s announcement will offer some relief to Americans who have seen higher premiums and fewer choices since Obamacare was implemented,” CMS Administrator Seema Verma said during a press call on Monday.
In the final rule, the CMS kept much of what it proposed in October. The agency went ahead with its earlier proposal to gives states flexibility to determine the essential health benefits that exchange insurers must offer, but pushed the effective data to 2020 instead of 2019. The extra leeway allow insurers to “create plans that more directly address the needs of (states’) citizens and not a one-size fits all D.C. mandate,” Verma said.
The CMS said states may either adopt another state’s 2017 benchmark plan; pick and choose a few elements of another state’s benchmark plan; or completely build a new essential benefits package from scratch so long as the new plan is not too generous and is in line with a “typical employer plan.” The benchmark plan defines what benefits insurers in the state must offer.
Verma said states are still subject to the ACA requirement that insurers offer 10 essential health benefits, and the flexibility doesn’t mean they may exclude coverage for essential benefits like maternity care or mental health benefits.
Policy experts have warned that allowing states to pick their essential health benefits would lead to a proliferation of skimpier plans on the market. Insurers had complained that the added state flexibility would increase insurance company costs.
The rule also eliminates standardized options starting in 2019 to encourage innovative plan designs among insurers. It also gives states more authority in reviewing qualified health plans for certification standards and eliminates the exchanges’ meaningful difference requirement.
And instead of requiring insurers planning to increase premiums by 10% or more to submit their rates to regulators for review, the rule increases that rate review threshold to premium increases of 15%.
Importantly, the rule also eases up state and insurer medical-loss-ratio requirements. The CMS will allow states to request changes to the minimum individual market MLR that insurers must meet if states can demonstrate that a lower MLR would help stabilize its market. Insurers covering individuals and employees of small businesses have had to spend at least 80% of their premiums on quality improvement activities and medical claims.
To relieve insurers of the burden that comes with identifying, tracking, and reporting expenses related to quality improvement activities, the CMS’ rule would also give insurers the option to continue reporting actual quality improvement activity expenses as they do today, or insurers could opt to report a single amount equal to 0.8% of the insurer’s earned premium for the year for a minimum of three consecutive years.
The agency further said it will implement strong checks to make sure individuals applying for insurance coverage earn the incomes they claim in order to qualify for premium tax credits.
Under additional guidance that the CMS released on Monday, a huge chunk of the Obamacare market won’t have to pay the individual mandate penalty for 2018 because they live in a bare county or a region with just one exchange insurer and can claim new exemptions from the penalty for as far back as 2016.
This represents the most sweeping forgiveness of the individual mandate penalty to buy comprehensive coverage on the Affordable Care Act exchanges, extended a few weeks before the tax filing deadline.
The CMS guidance broadens what is known as a “hardship” exemption from the individual mandate to buy insurance. It also extends the exemption to people who only have access to an insurance plan that covers abortion. Three states — California, Oregon and New York — require nearly all their insurance plans to cover abortion services according to the National Women’s Law Center. Those three states account for a big chunk of the Affordable Care Act enrollment numbers.
For 2018, California alone has more than 420,000 individual market enrollees, according to figures released by Covered California, the state’s marketplace. New York has more than 250,000 enrollees in qualified health plans.
The individual mandate penalty has been zeroed out for 2019, but this policy would impact all those still subject to the penalty for 2018 if they don’t buy a qualified health plan on the federally facilitated exchange or a state-based exchange whose exemptions are processed by the federal marketplace.
Those who live in a county with just one issuer can write a written explanation of why they are applying for the exemption if documentary evidence “is not readily available,” according to the guidance.
Last week, Congress left states holding the baton in a lonely sprint to curb 2019 Obamacare premiums, with just a couple of months to get creative with legislation, waiver requests, and regulations before insurers file their rate requests.
After opposing Republican efforts to expand federal abortion funding prohibitions to Affordable Care Act cost-sharing reduction payments and other measures, Senate Democrats opposed the GOP-led stabilization package with its funding for CSRs and a $30 billion reinsurance pool. Without Democratic support, the measure was dropped last week from the $1.3 trillion omnibus spending bill, the last must-pass legislation of the year. To insurers’ dismay, it isn’t likely to come back.
Although their time and options are limited, state officials and policy analysts agree the best immediate opportunity to stem 2019 rate hikes lies in states seeking ACA Section 1332 waivers to set up reinsurance funds. Otherwise, premiums for ACA-compliant individual-market plans are expected to rise by about 30%.
But for the states, the challenge lies in the details as they race against the calendar. Carriers will begin filing their proposed rates as soon as May, and most state legislatures that remain in session have to wrap up their legislative business in April. The 1332 waiver required for a reinsurance fund must be approved by state legislatures.
“A lot of the levers of control for marketplace stabilization are within federal control, and are not really within states’ authority,” said Heather Korbulic, executive director of the Silver State Health Insurance Exchange, Nevada’s individual marketplace. “Reinsurance at the federal level was something we were really hopeful about. We are looking at 1332 waivers and reinsurance options in the state, but it’s difficult.”
The Nevada Legislature is currently closed for business since it meets every other year, and this is an off-year. Also, while a reinsurance effort through a waiver is on the table, Korbulic noted, the state likely can’t afford to front the money for its reinsurance proposal the way Minnesota and Oregon did.
Korbulic noted that in her state, officials are most worried about consumers whose incomes are too high to qualify for ACA premiums subsidies, who are slated to take the same major rate hit they took for 2018. With that in mind, they are looking at how to expand and develop programs to mitigate rate hikes for people who are disproportionately affected. In Nevada, that’s unsubsidized people in rural areas
The state is also still looking into the feasibility of a Medicaid buy-in option, a measure vetoed last year by Republican Gov. Brian Sandoval on the grounds that it hadn’t been properly vetted. Now, committees are studying the potential impact of such a bill, which would let people buy Medicaid coverage.
Korbulic worries that unsubsidized consumers will face another big rate hike in 2019 driven by the repeal of the ACA’s individual mandate and the Trump administration’s push to expand short-term and association health plans, which are expected to drive up premiums for people who are older or who have pre-existing medical conditions. There is little the Nevada marketplace can control beyond educating consumers about their health plan options.
For people receiving ACA premium subsidies, the message is that the subsidies still exist, she said. For the unsubsidized, it’s necessary to educate them about the danger of going without insurance.
“The cost of medical care is so prohibitively expensive you will ruin yourself financially if you have an emergency, and you aren’t covered,” Korbulic said.
Some states may be able to scramble and set up a reinsurance pool in time to make a difference. In Colorado, where the legislative session won’t wrap up until May 10, officials are hoping to get a 1332 waiver request establishing a reinsurance mechanism authorized by legislators before the session ends. Individual-market insurers will be filing their proposed rates in June.
Under Colorado’s proposal, reinsurance would kick in for a health plan member at a certain claim amount. Colorado interim Insurance Commissioner Michael Conway said the state chose that model rather than tying reinsurance to a person’s health condition in order to protect patients from potential down-the-road discrimination in case the ACA’s consumer protections are ever repealed.
Conway added that for 2019 the state will also “silver load” the cost-sharing reduction payments, a method many states deployed for 2018 to protect unsubsidized enrollees once President Donald Trump halted CSR payments, although Colorado chose not to at the time. That method kept the cost of silver plans steady or even reduced them for some consumers because it boosted the amount of subsidy payments made by the federal government.
The fact that silver-loading in the wake of the CSR funding cut-off made premiums more affordable ultimately turned many Democrats and liberal advocacy groups against the congressional effort to restore CSR funding.
As states grapple with reinsurance, they also face the looming prospect of expanded access to short-term plans and association health plans. These Trump administration policies are urging states in different directions when it comes to changing up their risk pools.
In Iowa on Wednesday, the state House approved a combination of two bills. One would allow small employers to band together to create association health plans. The other bill would allow the Iowa Farm Bureau Federation to offer non-ACA-compliant plans insured by the state’s dominant carrier, Wellmark Blue Cross and Blue Shield.
State officials like Conway and Korbulic are wary of association health plans as a potential disruption to the small group employer market, which in most states has remained stable.
They are not alone in their concerns. New Jersey’s proposed bill to create a state individual mandate would require individuals who work for small businesses to enroll in coverage that meets small-group mandates in order to avoid the state’s penalty for not having qualifying insurance—an attempted check on the Trump administration’s push for association health plans, said Andrew Sprung, who authors the health policy blog Xpostfactoid.
To round out this three-in-one measure, the New Jersey bill would also funnel the mandate revenue into a reinsurance fund to support a companion bill to authorize a 1332 reinsurance waiver. The state already bans short-term individual-market plans.
While several states have limits on short-term plans, others are seeking to add them. Through rule-making, Washington state Insurance Commissioner Mike Kreidler wants to safeguard them with ACA protections.
As they observe the Trump administration’s actions and potential actions, state officials and exchange insurers hope the federal government will let states keep their autonomy and authority when it comes to regulating insurance. “I would caution the administration from making changes to supersede what states can do,” said Justine Handelman, senior vice president of the Blue Cross and Blue Shield Association.
Colorado statute already limits short-term plan enrollment. Conway said he has been in touch with the CMS and has had “some indication” the administration’s final rule on short-term plans won’t pre-empt the state’s law.
Another factor in insurance market uncertainty is that the Trump administration has yet to release its final rule on exchange benefit and payment parameters, which was expected in February. Some of the rule’s provisions, such as the proposed increased user fees for states that run their exchanges through the federal marketplace, could hit operational budgets.
States will face tough challenges in the coming months in keeping their individual insurance markets stable. The GOP goal of putting states in charge is being realized in a different way than congressional Republicans had envisioned when they tried to repeal and replace the ACA last year.
This past week’s failure of the congressional effort to pass an insurance market stabilization package coincided with the ACA’s eighth birthday. It highlighted how the continuing federal battle over Obamacare is playing out at the state level.
“The consequences of Trump and congressional Republicans’ sustained attacks on Americans’ healthcare will be higher premiums, the return of junk insurance, and widespread discrimination against vulnerable people,” said Sen. Ron Wyden (D-Ore.).
For now, protecting consumers from higher premiums and discrimination based on pre-existing conditions is in the states’ hands. Conway is eager to get to the next challenge—bringing down the healthcare costs—which Congress has not yet attempted to do.
“Until we address that problem, we won’t make a real difference in the premium rates people are paying,” Conway said.
CMS Administrator Seema Verma declined to say whether the Trump administration would limit how payers in the Affordable Care Act (ACA) marketplace use government subsidies, the Washington Examiner reported.
The question comes as some ACA payers continue the practice of “silver loading,” which is when an insurer puts all the losses associated with the end of cost-sharing reduction (CSR) payments on only silver plans. HHS Secretary Alex Azar also said recently that he hasn’t been involved in discussions about whether to stop silver loading.
Verma also told reporters the agency continues to uphold the ACA despite its well-known opposition to the law.
President Donald Trump ended CSR payments to ACA payers in October. They had been given to insurers for only silver plans, to help contain out-of-pocket costs for lower-income Americans. Silver plans make up more than half of ACA plans.
Without those CSR payments, payers could either increase premiums on silver plans, which is called silver loading, or spread the losses across the four plan levels in the marketplace. Keeping the largest premium increases to the silver plans kicks in other government subsidies and tax credits for lower-income members.
Middle-class and upper-middle-class members still see their premiums skyrocket. Most people with an ACA plan get subsidies to help control the cost, but those who make too much then take the brunt of the premium increase.
Meanwhile, Verma’s comments about the CMS following ACA law in its decisions was evident when the agency recently rejected Idaho’s request to sidestep ACA regulations in the marketplace. CMS went against Idaho’s plan because the state wouldn’t be enforcing the ACA rules.
That said, Verma also suggested at the time that Idaho could achieve its goals by expanding short-term catastrophic plans. The Trump administration supports transforming short-term plans from three-month plans for which few people are eligible to 12-month plans with the option to extend the plan for another 12 months. The administration’s proposal would also open up the plans to everyone.
Less than a week after Congress passed and President Donald Trump signed a two-year budget deal into law, the administration proposed to slash the budget for HHS to $68.4 billion, a $17.9 billion or 21% decrease from the 2017 enacted level.
The document calls for repeal of most of the Affordable Care Act, modifications to the 340B program and new funding to fight the opioid crisis.
In total, the budget proposal for HHS lays out $95.4 billion in discretionary budget authority and $1,120 billion in mandatory funding for programs like Medicare and Medicaid. It also eliminates the Agency for Healthcare Research and Quality.
Newly-minted HHS Secretary Alex Azar said the document backs the administration’s four priorities of “addressing the opioid crisis, bringing down the high price of prescription drugs, increasing the affordability and accessibility of health insurance, and improving Medicare in ways that push our health system toward paying for value rather than volume.”
The budget calls for $5 billion over five years in new resources to fight the opioid epidemic, which claimed the lives of about 64,000 Americans in 2016. Specifically, the budget request asks for $1 billion in funding for 2019, including: $50 million for a national media campaign, $625 million in funding for states, $50 million to provide first responders with overdose-reversal drugs and $100 million for surveillance and opioid abuse prevention like investments in state Prescription Drug Monitoring Programs.
Affordable Care Act and Medicaid
The ACA is back in the administration’s crosshairs: the budget calls for the passage of legislation based on the Graham-Cassidy-Heller-Johnson bill as soon as possible. The crux of the proposal seeks to repeal and replace the ACA by taking federal dollars and block granting the money to states. In addition, it calls for the repeal of the ACA’s Medicaid expansion.
“National healthcare spending trends are unsustainable in the long term and the Budget includes additional proposals to build upon the GCHJ bill to make the system more efficient, including proposals to align the Market Based Health Care Grant Program, Medicaid per capita cap, and block grant growth rates with the Consumer Price Index (CPI-U) and to allow States to share in program savings,” the budget proposal states.
Recent CMS efforts to allow states to implement Medicaid work requirements will continue. “The Budget would give States additional flexibility around benefits and cost-sharing, allow States to consider savings and other assets when determining Medicaid eligibility, and reduce waste by counting lottery winnings as income for Medicaid eligibility,” the proposed budget states.
Notably, in a footnote, the budget proposal calls for mandatory funding for certain ACA stabilization efforts. “In addition to the proposals listed, the Budget requests mandatory appropriations for the Risk Corridors program and for Cost Sharing Reduction payments. These proposals have no deficit effect,” the footnote states.
According to the HHS budget-in-brief, the proposal would fully fund the ACA Risk Corridors Program and exempt the program from sequestration.
340B drug pricing program
The proposed budget also targets 340B hospitals by “rewarding hospitals that provide charity care and reducing payments to hospitals that provide little to no charity care,” and states that “beginning in CY 2019, this proposal allows CMS to apply savings from a reduction in payment to hospitals for drugs purchased under the 340B program in a non-budget neutral manner.”
“Under this proposal, the savings from hospitals that provide uncompensated care equaling at least one percent of their patient care costs are redistributed based on their share of aggregate uncompensated care. Hospitals not meeting that threshold are not eligible for the redistribution, and the savings from their payment reduction will be returned to the Medicare Trust Funds,” the HHS budget-in-brief states.
In addition, the budget proposal pushes for a requirement that hospitals report how they use savings from the 340B program. The recommendations come days after the White House Council of Economic Advisers suggested that more oversight of the 340B program is needed.
“The administration’s interest in examining the integrity of the 340B drug pricing program mirrors our years-long investigation, which will help inform upcoming legislative efforts. Many of the administration’s other proposals to lower health care costs complement our continued commitment to addressing the cost drivers across every facet of our nation’s health care system,” House Energy & Commerce Committee Chair Greg Walden, R-Ore., said in a statement.
The budget makes a few notes regarding value-base payment reform. It says it will eliminate “low-value metrics” in performance-based payment models and change incentives to participate in alternative payment models by altering how the 5% bonus is paid out. Providers would be glad to see more upside to engaging in APMs, as many worry about taking on too much risk as they experiment with different models. As for metrics, it’s hard to argue against eliminating those that don’t accurately convey quality care that is efficient, but there are numerous disagreements about which metrics that might include.
The budget document also suggests HHS could work with the Drug Enforcement Agency to revoke the ability to prescribe certain controlled substances from providers with a pattern of abusive prescribing. It also proposes allowing Medicare to cover methadone treatment.
The budget lays out a plan to “prioritize funding” for programs that focus on meeting the needs of older Americans. It mentions providing assistance with transportation, nutrition and respite care for caregivers.
It also includes a proposal to remove uncompensated care payments from the Inpatient Prospective Payment System and create a new process that makes those payments based on hospitals’ share of charity care and non-Medicare bad debt reported on S-10 worksheets.
The budget claims its Medicare changes would produce more than $490 billion in savings over 10 years and extend solvency of the program by eight years.
The budget proposal also:
- Creates one payment system for all post-acute care systems and provide payments based on episode of care instead of site of care.
- Reduces Medicare reimbursement of bad debt from 65% to 25% over three years.
- Eliminates exemptions for site-neutral payment policy for off-campus hospital outpatient facilities.
- Establishes a prior authorization program for practitioners with high use of radiation therapy, therapy services advanced imaging and anatomic pathology service.
- Changes MIPS to assess clinician performance on the group level only.
The bottom line
The massive budget proposal is likely to largely be dead on arrival in Congress. But that doesn’t mean that it have no impact, one expert says.
“This year’s budget comes on the heels of a major Congressional agreement that explicitly funded many specific healthcare priorities, including $6 billion to fund responses to the opioid crisis and mental healthcare, $4 billion for Veterans Health, and $2 billion for the National Institutes of Health,” said Dan Mendelson, president at Avalere. “This budget discussion is meaningful in implementing these changes, as well as in proposing new policies that could potentially be pursued without Congressional approval.”