Patient Protection and Affordable Care Act

Supreme Court Rules the Federal Government Must Pay Health Insurers’ Multi-Billion Dollar Risk Corridor Claims

 

Insurance markets have been watching the Supreme Court’s docket for its ruling on whether the Federal Government must compensate some of health insurers’ losses. Today the Supreme Court ruled that the Federal Government must satisfy these obligations. Insurers and holders of their claims are expected to seek billions of dollars of compensation.

Section 1342 of the Patient Protection and Affordable Care Act attempted to mitigate risk for insurers who sold health insurance on federal insurance exchanges through a “risk corridor payment system” – during the first three years of the insurance exchanges’ operation, 2014 through 2016, insurers who profited from selling insurance on the exchanges transferred a share of their profits to the Federal Government, which was required to compensate other insurers whose costs exceeded the premiums they collected on the exchanges. However, in 2014 the Congress passed an appropriations bill that purported to limit these compensation payments, and a federal appeals court ruled that this and subsequent appropriation bills repealed or suspended the Federal Government’s obligation to make transfer payments to loss-making insurers. Some insurers’ losses reached billions of dollars.

Today the Supreme Court held that § 1342 imposed a direct legal obligation on the Federal Government to make risk corridor payments to loss-making insurers who had participated in the insurance exchanges, notwithstanding the Federal Government’s argument that § 1342 provided insufficient details for how the Federal Government should satisfy these obligations. The Court held that § 1342 does not require risk corridor payments to be budget-neutral, nor to permit partial satisfaction of the Federal Government’s obligations to insurers, and rejected arguments that an appropriations bill could implicitly repeal another statute’s express statutory language.

Investors who are interested in trading in insurers’ risk corridor claims should note that while the Supreme Court’s ruling appears to shelter risk corridor payments from any offsets or deductions by the Federal Government, there are further nuances they should understand concerning how the risk corridor payment program calculates claim amounts – and in how claim transfer agreements structure transferees’ rights.

Investors who want to capitalize on these developments should contact Raniero D’Aversa and Allison Citron of Orrick’s Restructuring group.