The two insurers were seeking hundreds of millions of dollars in payments from Obamacare’s risk corridors program. | Alex Brandon/AP Photo Court: Federal government doesn’t owe insurers Obamacare payments

The federal government doesn’t have to pay health insurers money they claim they’re owed from an Obamacare program, a federal appellate court ruled Thursday morning in a case with billions of dollars at stake.

A divided three-judge panel rejected claims from two Obamacare insurers that the federal government was required to make good on payments from a program meant to protect insurers who attracted customers who were sicker and more expensive than anticipated.


The two insurers were seeking hundreds of millions of dollars in payments from Obamacare’s risk corridor program, and at least three dozen other insurers have filed similar lawsuits. In all, insurers say they’re owed more than $12 billion from the risk corridor program, a shortfall they have partially blamed for skyrocketing premiums and dwindling competition in the Affordable Care Act marketplaces.

The court, siding with the Trump administration, said the federal government didn’t have to make the payments because Congress had taken action — after Obamacare’s passage — requiring the program to be budget neutral year after year.

“Congress clearly indicated its intent here,” the majority opinion read.

The decision is likely to set a precedent for the other pending cases. The insurers can appeal the ruling to the U.S. Supreme Court, raising the prospect that the high court could again weigh in on an Obamacare case.

Lower courts had split on the merits of the two insurers’ claims. Moda Health, an Oregon-based insurer, prevailed in its lawsuit, and the U.S. Court of Federal Claims ordered the federal government to pay more than $200 million. But the Illinois-based Land of Lincoln’s case seeking more than $70 million was rejected by the lower court.

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The temporary risk corridor program was one of three Obamacare programs offering financial protection to insurers in the law’s new marketplaces when they opened in 2014. Insurers earning more than expected were required to pay into the program, while those losing big were expected to receive payments during the three years it operated.

However, the marketplaces performed worse than expected in the first few years, meaning more insurers sought payments. During the program’s first year, there were only enough funds to make good on 12.6 percent of payments owed to insurers.

The insurers said the federal government was required to use taxpayer dollars to make up the funding shortfall, but Republicans decried the request as a bailout. In annual spending bills, Congress banned the federal government from making payments to insurers, prompting them to file lawsuits to recover the payments.

Many insurers in Obamacare’s early years raised premiums higher than expected to make up for the funding shortage. Many nonprofit health insurers that were launched with Obamacare funding shut down, unable to absorb the financial blow from the lost risk corridor payments.

The legal defeat is unlikely to have a significant effect on the shaky Obamacare markets, insurance experts say. That’s because companies that have stuck by the law have made adjustments to compensate for the shortfall in risk corridor payments. Many insurers that remained in the markets are now making money on their Obamacare customers.

“They’ll certainly be sad, but it shouldn’t affect the market going forward,” said Larry Levitt, senior vice president for health reform at the Kaiser Family Foundation. “This is basically water under the bridge.“

But the decision could set a troubling precedent for insurers doing business with the government, said Dan Mendelson, founder of the consulting firm Avalere Health.

“I think that this could cause some insurers to rethink their participation in markets,” Mendelson said. “Would you want to do business with a partner like that?”

In a dissenting opinion, Judge Pauline Newman said Congress couldn’t erase the requirement to pay back the insurers, despite the so-called riders written into spending bills.

“The appropriation riders … did not erase the obligations,” Newman wrote.

Insurers can ask the full appellate court to hear the lawsuit, but that’s unlikely to succeed, legal experts say. They can then petition the Supreme Court to take the case, which isn’t completely unlikely given the split decision at the appellate level. But their chances of ultimately overturning Thursday’s ruling would appear to be slim.

“They’re lower today than they were yesterday,” said Nicholas Bagley, a professor at University of Michigan Law School, who has tracked the cases closely. “I wouldn’t be too bullish about insurers recovering anything, but there’s still a chance.”

