Supreme Court Ruling on ACA Risk Corridor Payments

On April 27th, 2020, the Supreme Court ruled in favor of four health insurers who filed suit against the United States for billions of dollars for failure to pay risk corridor payments established as part of the Affordable Care Act (“ACA”), Section 1342.  The ACA provision was intended to prevent hefty premiums and encourage risk-averse insurers to participate in the Marketplace by offering policies that covered individuals with pre-existing conditions and who might have higher than expected insurance claims. According to the National Law Review, “To mitigate insurers’ risk entering unpredictable new marketplaces, Congress created the “Risk Corridors” program, set out in §1342 of the ACA, which allowed insurers to share both profits and losses in the new marketplaces’ first three years of existence. Under § 1342, if the insurance plans were not profitable, then the federal government “shall pay” the insurers according to the formula specified in the statute, to compensate for their losses; but if the insurance plans were profitable, then the insurers were required to share the benefits with the federal government by paying it according to the statutory formula.”

In the case, Maine Community Health Option v. The United States, by a vote of 8-1,the Supreme Court awarded over $12 billion in unpaid risk corridor payments to insurers from 2014 to 2016. The Supreme Court ultimately ruled against the Federal Government, who argued that in 2014, after the ACA legislation was established, Congress passed an appropriations bill, blocking the payments of CMS (Center for Medicare and Medical Services) funds to pay for the program, claiming the corridors would be revenue-neutral. The insurers when determining their premiums for the opening of the exchange health plans were told by the CMS, they would be paid regardless of the amount the government collected through the program. Unfortunately, in the first three years, the insurers’ claims vastly exceeded the amount collected. This deficit resulted in many smaller insurers and co-op health insurance plans to go out of business Other insurers left the Marketplace or increased their premiums. The insurers argued that the government violated the original legislation, which claimed they would be reimbursed for losses if they participated in the Marketplace exchanges and this could not be revoked by Congress after the fact with riders in an appropriation bill.

Ultimately the decision by the Supreme Court determined insurers were owed the risk corridor payments.  It was stated in Justice Sonia Sotomayor’s majority opinion “these holdings reflect a principle as old as the Nation itself: The Government should honor its obligations.” This ruling is imperative to keeping the ACA exchanges in place and help keep health insurance premiums affordable to all. Insurance experts claim that the lack of funding to help these insurers in the preliminary phase of the ACA caused premiums to increase in the Marketplace. However, according to the Kaiser Family Foundation, “ACA premiums are falling in many areas of the U.S. in 2020”. To see how premiums are changing in your region visit,  https://www.healthcare.gov/health-plan-information-2020/ where you can access a pricing tool for 2020 health plans.

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