The Affordable Care Act (ACA) has been the impetus for extensive litigation since it was enacted in 2010. The Supreme Court has heard oral argument in four cases, and scores of other cases have been filed in the lower courts. Many of the challenges have come from individuals and groups ideologically or otherwise opposed to the controversial law, seeking to have it fully repealed or at least significantly narrowed. Some recent lawsuits, however, have been filed by the issuers of the qualified health plans (QHPs) that were fully on board with the ACA by offering individual and group coverage on the health insurance exchanges.

The first of the cases was filed by an insolvent Consumer Operated and Oriented Plan, or CO-OP, from Oregon, Health Republic Insurance Company of Oregon (HRIO) on February 24, 2016, in the U.S. Court of Federal Claims. The case, a putative class action, alleges that the government had no right to reduce Risk Corridors program payments owed to QHPs authorized to sell insurance on the federal exchanges. The putative class in HRIO’s suit would include all issuers who did not receive the full amounts they were owed under the Risk Corridors program, which HRIO estimates as totaling $5 billion.

The Risk Corridors program is one of the so-called 3Rs programs established to provide market stability in the first few years of the exchanges. Risk Corridors, along with the Risk Adjustment and Reinsurance programs, was designed to protect insurers from oversized losses anticipated as a result of the uncertainty inherent in the expanded health insurance market.

The Risk Corridors program is a temporary measure designed to limit QHPs’ gains and losses in the first three years of the exchanges. The program shifts money from QHPs with lower than expected losses to QHPs with losses exceeding certain benchmarks. Because QHP losses overall were larger than the amounts paid into the program by profitable QHPs and because Congress did not appropriate additional funds to cover the QHPs’ losses, the federal agency responsible for administering the 3Rs programs, the Centers for Medicare and Medicaid Services (CMS) announced that it would only pay 12.6% of the $2.87 billion owed QHPs for 2014. CMS said that it would make-up the shortfall in future years as funds become available.

Some less well-financed QHPs, including HRIO, were depending on receiving millions of dollars more from the 3Rs programs than they actually received and needed those funds for their continued viability. HRIO, in its lawsuit, claims that the money could have allowed it to continue operating. HRIO’s efforts to collect Risk Corridors funds is to help it proceed through its liquidation and pay its creditors, including healthcare providers such as physicians, hospitals and other health professionals.

A second lawsuit was filed by CoOportunity Health, another ACA CO-OP that operated in Iowa and Nebraska, before becoming insolvent. The Iowa insurance commissioner handling the CoOpportunity liquidation filed a lawsuit against the federal government in federal district court on May 3, 2016, alleging that the government is improperly withholding approximately $60 million in payments owed to the CO-OP, $20 million for Iowa and $40 million for Nebraska, as well as an additional $130 million in Risk Corridors payments. The Iowa/Nebraska suit alleges that by withholding amounts the government owes to CoOpportunity, CMS is improperly seeking to get a preferred position with regard to other creditors of the failed company. CoOpportunity argues that the government’s actions in withholding payment owed the CO-OP are in violation of state and federal law.

The most recent suit was filed on May 17, 2016, by Highmark, Inc., which owns and is affiliated with several Blue Cross and Blue Shield-related entities. Highmark filed its lawsuit in the U.S. Court of Federal Claims, asserting that it is owed nearly $223 million in Risk Corridors payments for 2014, and will be owed an additional $500 million in such payments for 2015. Despite heavy losses, Highmark has said it is committed to staying in the ACA market and believes its lawsuit is necessary to require the government to honor its obligations.

With three suits filed already in 2016, it remains to be seen how these cases will be handled and whether similar lawsuits will follow. The government has yet to file its formal responses to the complaints so how the government will respond is not yet known.

We will continue to track these cases, so look for updates on our blog.


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Photo of David Kaufman David Kaufman

David Kaufman is a Partner at Freeborn & Peters LLP, and he serves as a key member of the Firm’s Healthcare Practice Group.

David has practiced health law for more than 25 years, representing a range of entities responsible for ensuring cost effective and equitable access to healthcare, including health insurers, physicians groups, and regulators.

David has significant experience in federal and state-level regulatory and administrative law gained through private practice as well as in the public sector, serving as General Counsel to the New Mexico State Corporation Commission, Counsel to the New Mexico Superintendent of Insurance, and an Assistant Attorney General for the State of New Mexico.

Admitted to the state bars of New Mexico, New York, California, and Illinois, David’s prior experience in private practice includes work with national law firms in Chicago and Los Angeles, working on transactional healthcare matters and labor and employment issues, as well as Medicare and Medicaid reimbursement.

Before joining Freeborn, David served most recently as General Counsel for Blue Cross and Blue Shield of Illinois, where he was responsible for advising the company on regulatory and business issues in general and on the implementation of the Affordable Care Act.

Photo of Deborah Dorman-Rodriguez Deborah Dorman-Rodriguez

Deborah Dorman-Rodriguez is a Partner at Freeborn & Peters LLP, and is the leader of the Healthcare Practice Group.

Deborah has diverse experience as a healthcare attorney representing insurers, providers, and other healthcare entities. Most recently she served as the Senior Vice President, Chief Legal Officer, and Corporate Secretary at Chicago-based Health Care Service Corporation (HCSC), which operates BlueCross and BlueShield plans in Illinois, Montana, New Mexico, Oklahoma and Texas.

At HCSC Deborah was responsible for providing legal advice and consultation on such issues as federal and state regulatory implementations, litigation, mergers and acquisitions, corporate governance and compliance.  She oversaw HCSC’s legal strategy during a period of unprecedented turbulence in the healthcare industry and helped the company navigate the regulatory and business upheaval associated with the passage of the Affordable Care Act (ACA).

With her experience in serving as CLO of a large organization and in representing healthcare clients over the past 20 years, Deborah understands that no legal decision exists in a vacuum, and that it is vitally important to offer legal advice that is business focused, efficient, practical, and solution-oriented.

Before serving as HCSC’s Chief Legal Officer, Deborah was Vice President and General Counsel of Blue Cross and Blue Shield of New Mexico, an attorney with the law firm of Simons, Cuddy & Friedman in  Santa Fe, New Mexico, where she represented health insurers, physician groups, and other healthcare organizations, Special Counsel to the New Mexico Superintendent of Insurance, and a former New Mexico Assistant Attorney General specializing in health insurance and telecommunications regulatory issues.