Federal Government Owes Insurers Risk Corridor Payments

Insurance Law Alert

February 13, 2017

Cynthia J. Borrelli

Cynthia J. Borrelli



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On Thursday, February 9, an Oregon-based insurer was awarded $214 million by the United States Federal Court of Claims in an action instituted after Congress in 2014 failed to appropriate funds to enable the federal government to fund risk corridor payments due insurers under the Patient Protection and Affordable Care Act (Affordable Care Act). (Click here to see link to Moda Health Plan, Inc. v. The United States.)

The risk corridor program was intended to mitigate risks that insurers were taking on during the first few years of Affordable Care Act implementation by shifting funds from insurers that had over-performed on expectations to those that under-performed, i.e., those that had a greater proportion of insureds with underwriting losses. Congress had amended the statute to require that it appropriate funds to finance the risk corridor payments. Unfortunately, the legislation did not receive the appropriations needed from elsewhere within the Department of Health and Human Services to make up any shortfalls between the money collected from insurers and the money owed to them. Accordingly, on average, insurers received approximately 12% of the payments they had been owed.

In the February 9 opinion, the United States Court of Claims ruled that the government had “breached the contract by failing to make full risk corridor payments as promised.” The court, therefore, entered summary judgment in favor of the Oregon insurance company, Moda, in the amount of $214 million. The Federal Court of Claims concluded:

There is no genuine dispute that the Government is liable to Moda. Whether under statute or contract the Court finds that the Government made a promise in the risk corridors program that it has yet to fulfill. Today, the Court directs the Government to fulfill that promise. After all, “to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.” Brandt v. Hickel, 427 F.2d 53, 57 (9th Cir. 1970). “Government’s motion to dismiss is DENIED.”

The ruling could be viewed as establishing a precedent that could render the federal government responsible for billions of dollars in payments that insurers claimed they were owed under the risk corridors program.