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Will health insurers win reimbursement of public exchange losses?

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A stream of health insurer lawsuits over the government's failure to make promised risk corridor payments under the health care reform law faces an outcome that is far from certain.

At least five health insurers and co-operatives have sued the government for failing to make payments through the program meant to offset insurers' losses in their public exchange business.

Blue Cross and Blue Shield of North Carolina sued last week in the Washington-based U.S. Court of Federal Claims, alleging it is owed $129 million through the risk corridor program established under the Affordable Care Act for its losses in 2014.

Fellow Blues affiliate, Pittsburgh-based Highmark Inc. and several subsidiaries, sued in the same court in May, demanding $222.9 million for 2014 public exchange business.

Portland, Oregon-based insurer Moda Health Plans Inc. along with failed co-ops Iowa-based CoOportunity Health and Oregon-based insurer Health Republic Insurance Co. of Oregon have filed similar suits.

The issue began last year when the U.S. Centers for Medicare and Medicaid Services said it would pay only 12.6% of the money insurers requested for 2014 losses, with the rest paid in 2015 and 2016 if necessary. CMS has not yet announced the payments it will make for 2015 losses. The program sunsets after this year.

Some insurers demand that CMS make those 2014 payments now, but it's unclear whether the lawsuits will succeed.

Opposing views

Nicholas Bagley, professor of law at the University of Michigan in Ann Arbor, said the insurers have a strong claim.

“It's likely that they will prevail in these lawsuits, and they will end up recovering what they are owed,” Mr. Bagley said.

But this is an unusual situation, he said. Congress typically appropriates funds to cover obligations under ACA, but refused to do so for the risk corridor program. That, he said, puts the administration, which would like to pay up, in a strange position.

“It's not clear how the administration will approach these lawsuits,” he said.

Cynthia Borrelli, a principal at New Jersey-based law firm Bressler, Amery & Ross P.C., said in an email that she does “not believe the constitutional arguments have credibility” because funding is “always subject to appropriation” by Congress.

Mr. Begley said an argument could be made that the insurers should have waited to sue until the risk corridor program concludes to “find out if it's in the red,” which would be 2017 when CMS calculates 2016 loss payments.

Insurers have lost money through public exchange plans primarily because they priced the plans too low in 2014 and 2015, experts say. For example, Highmark said in April that it lost $590 million on its public exchange business in 2015.

But while some insurers had factored future risk corridor payments into their exchange plan pricing, that's not a major reason some have lost so much on the exchanges, sources said. They priced poorly with the limited data they had available, source said.

Plus some large health insurers were skeptical of the risk corridor program early on, said Chris Sloan, Washington-based senior manager at consultant Avalere Health. Still, co-ops relied heavily on the payments as they had no other lines of business to help offset losses, he said.

If the lawsuits fail and insurers don't receive the risk corridor payments they are owed, it could affect their bottom line and “make it harder for them to continue to participate” in the exchange market, Mr. Bagley said.

Despite the insurer lawsuits, I don't think these risk corridor payments will affect insurer participation going forward,” said Larry Levitt, Menlo Park, California-based senior vice president of the Kaiser Family Foundation.

Suing for the risk corridor payments is “more about trying to rebuild their surpluses,” Mr. Levitt said.

Some said they expect more insurers to sue over the payments.

“There's money on the table, Mr. Bagley said. “Why wouldn't you file suit?”