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January 17, 2018

ACA Litigation Update: Will More Insurers File CSR Lawsuits in 2018?

On October 12, 2017, the Trump administration announced that it would immediately stop making cost-sharing reduction (CSR) subsidy payments under Section 1402 of the Affordable Care Act (ACA). CSRs allowed — and in fact required — health insurers to defray out-of-pocket costs to insure low-income Americans. As we detailed in our October 16 update on the subject, we felt that this would leave the U.S. government vulnerable to legal claims by health insurers in the U.S. Court of Federal Claims, by virtue of the Tucker Act.

Events since that time suggest that insurers that are still owed significant CSR reimbursements from Q4 2017 may now begin to pursue litigation to recover their losses.

First, just after the administration’s announcement, the U.S. District Court for the Northern District of California issued its initial decision in State of California v. Trump. Although it denied the states’ request for preliminary relief, the Court recognized that the ACA “requires the federal government to pay insurance companies to cover the cost-sharing reduction,” and that “[t]he federal government is failing to meet that obligation.” This echoed comments from a previous decision in the House v. Hargan (previously Burwell) case, in which the U.S. District Court for the District of Columbia similarly recognized that unreimbursed insurers “might sue the government under the Tucker Act.” Although neither court considered the merits of such claims, their holdings suggest they at least view claims by insurers to be a viable option.

Second, the government has now failed to make all three of the remaining monthly payments for 2017, meaning that — absent Congressional action or court order — those payments are not forthcoming. Moreover, although the reconciliation process between health insurers and the federal government for 2017 is not complete, many insurers can now calculate their losses to a reasonably certain degree.

Third, an alternative legal or political solution appears increasingly unlikely, or at least distant, at this point. The parties in Hargan have announced a conditional settlement agreement that — absent further action by the intervenor states — might resolve that case for good. And the court in Trump has set a briefing schedule that will not likely result in a decision until this fall. As for potential action by Congress, the bipartisan market stabilization package championed by Senators Lamar Alexander, R-TN, and Patty Murray, D-WA, includes a provision to restore CSR funding, but the chances of this package passing both chambers of Congress appear increasingly unlikely.

Finally, as the Risk Corridors cases work their way through the Courts of Federal Claims and now the Federal Circuit, it is worth noting one key distinction with the CSR claims. Although both cases involve statutes containing clear “shall pay” directives, one of the main issues in the Risk Corridors litigation is the legal effect of a series of appropriations riders that restricted funding sources available for those payments. No similar riders exist for CSR payments: either the permanent appropriation relied upon by the Obama administration provides CSR funding or, as the Trump administration now contends, Congress simply failed to appropriate funds to meet the government’s obligation.

To date, at least two actions have been filed in the Court of Federal Claims asserting CSR-related claims. In light of recent developments, more such filings can be expected. 

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