On June 21, 2021, the Supreme Court denied requests from multiple insurers to review lower court decisions that held they were not entitled to full unpaid cost-sharing reduction payments (CSRs). As a result, two August decisions by a three-judge panel of the Court of Appeals for the Federal Circuit will stand. Under these decisions, insurers are entitled to the unpaid CSRs, but the total amount they are owed must be offset by any excess premium tax credits received from premium loading for 2018 and beyond. From here, insurers and the federal government may negotiate settlements or pursue damages calculations before the Court of Federal Claims.
Also on June 21, the Centers for Medicare and Medicaid Services (CMS) issued a $20 million notice of funding opportunity for state-based marketplaces to implement enhanced subsidies under the American Rescue Plan Act (ARPA) or adopt other technological changes needed to comply with federal law. CMS will award up to 21 cooperative agreements of $1.33 million for each of the 15 state-based marketplaces and $800,000 for each of the six state-based marketplaces that use the federal platform. Applications are due on July 20 and funds will be awarded in early September 2021.
Insurers Will Not Recoup Full Unpaid CSRs
There is a long history of litigation over CSR payments, which compensate insurers for reducing out-of-pocket costs for marketplace enrollees with incomes between 100 and 250 percent of the federal poverty level, as required by the Affordable Care Act (ACA). This history dates to November 2014 when the Republican-led House of Representatives sued the Department of Health and Human Services (HHS). The House argued that CSR payments to insurers were improper because HHS did not have an explicit congressional appropriation to make them.
In 2016, Judge Rosemary M. Collyer of the District of Columbia agreed with the House, concluding that HHS could not constitutionally reimburse insurers for CSRs without such an appropriation. This litigation was resolved in May 2018.
In October 2017, the Trump administration cited Judge Collyer’s ruling to justify an abrupt decision to stop making CSR payments to insurers. In response, many insurers increased premiums for 2018 to make up for the lack of CSR payments. Most insurers used “silver loading” by increasing premiums only on silver-level plans, including the benchmark plan that determines the amount of premium tax credits for those who qualify. Other insurers used “broad loading,” which applied higher premiums to all plans (not just silver plans) to account for unpaid CSRs. The approaches used for 2018 are outlined here.
Increased silver-plan premiums led to higher premium tax credits from the government, mitigating the effect of CSR nonpayment. Since a consumer can use their premium tax credit to purchase any metal tier (except a catastrophic plan), many consumers have been able to enroll in bronze or gold plans at much lower costs relative to prior years. Premium loading has been used every year since 2018.
The Trump administration’s decision was challenged by Democratic state attorneys general. However, this challenge was ultimately dismissed (at the states’ request) after the district court, citing the positive effects of silver loading, denied the states’ motion for a preliminary injunction to bar the administration from halting CSR payments. These positive effects include higher premiums for the silver benchmark plan and thus higher premium tax credits and more generous subsidies for low-income people. Minnesota and New York also sued, separately, over the impact of this decision on their Basic Health Programs.
At the same time, insurers began suing the federal government for unpaid CSRs in the Court of Federal Claims. These lawsuits began as early as November 2017 when Common Ground Healthcare Cooperative amended its class action lawsuit on risk corridor payments to additionally contest CSR nonpayment. This was followed by separate challenges from several other insurers. To my knowledge, insurers won every CSR case decided by the Court of Federal Claims.
Federal Circuit Decisions
The federal government appealed several of these lawsuits to the Federal Circuit, which held oral argument. The appellate court then requested two rounds of supplemental briefing, first on damages and the possibility of a double recovery, and second on the impact of the Supreme Court’s decision in Maine Community Health Options v. United States (where insurers were awarded more than $12 billion in unpaid risk corridors payments). The Court of Federal Claims later held that about 100 insurers—in a class action lawsuit led by Common Ground Healthcare Cooperative—were owed about $131 million in unpaid CSRs for 2017 and about $1.45 billion in unpaid CSRs for 2018. The federal government separately appealed that decision to the Federal Circuit.
In August 2020, a three-judge panel of the Federal Circuit issued two decisions—Sanford Health Plan v. United States and Community Health Choice v. United States—concluding that insurers are entitled to unpaid CSRs under Section 1402 of the ACA. The panel agreed with the lower courts that Section 1402 imposes an “unambiguous obligation” on the government to make CSR payments to insurers and that this obligation is enforceable for damages in court. However, the panel differed with the lower courts on damages and limited the amount of unpaid CSRs that insurers can recover based on premium loading.
Sanford Health Plan addressed lawsuits brought by insurers whose claims were limited to unpaid CSRs for 2017 only. Relying heavily on the Supreme Court’s recent decision in Maine Community Health Options, the panel affirmed that the two insurers were entitled to unpaid CSRs for 2017. Community Health Choice addressed lawsuits brought by insurers with claims for unpaid CSRs for 2017 and 2018; silver loading was a significant factor in the court’s analysis regarding unpaid CSRs for 2018. The government had argued that insurers would receive a windfall if allowed to recover unpaid CSRs for 2018; because of silver loading in 2018, many insurers received higher premium tax credits. This, the government argued, functioned as indirect compensation for unpaid CSRs in the form of higher premium tax credits. As a result, insurers should not be allowed to recover full unpaid CSRs.
The Federal Circuit agreed with the government’s view of damages. Under Community Health Choice, insurers can recover damages for unpaid CSRs for 2018—but only to the extent that they were not made whole because of premium loading (whether silver loading or broad loading). Thus, the amount that insurers can recover in unpaid CSRs for 2018 must be reduced by the amount they received in higher premium tax credits due to premium loading. Concerned that full recovery of unpaid CSRs would be a windfall for insurers who have already been made more than whole through higher premium tax credits, the panel applied contract-like principles to limit recovery. The Federal Circuit then remanded the cases with instructions on how to calculate and reduce insurers’ damages based on premium loading.
The insurers asked for a panel rehearing and en banc review of the decision in Community Health Choice; that request was denied in November 2020. In December 2020, the Federal Circuit denied a separate but similar request made by Common Ground on behalf of those in its class action.
Request for Supreme Court Review
In February 2021, Maine Community Health Options and Community Health Choice appealed, asking the Supreme Court to review the Federal Circuit decision’s in Community Health Choice. Common Ground filed its own cert petition, and the federal government also filed cross–petitions. Overall, there were four pending cases to watch.
In general, the insurers argued that the Federal Circuit misapplied the Supreme Court’s recent precedent in Maine Community Health Options. The CSR statute, they argued, is unambiguous as to the amount owed to insurers, and the Federal Circuit improperly analogized to contract law in concluding that unpaid CSRs must be offset by higher premium tax credits. Amicus briefs in support of the insurers were filed on behalf of Anthem (joined by Blue Cross of Idaho, Highmark, LA Care Health Plan, and Molina), the Association for Community Affiliated Plans, and the U.S. Chamber of Commerce. Each brief urged the Court to hear the appeals and reverse the Federal Circuit’s decision by concluding that insurers are owed full unpaid CSRs. The briefs generally echoed points made in the Maine Community Health Options case, asserting that the future of public-private partnership is at risk if insurers cannot recover full CSRs. The briefs tried to sidestep the question of whether insurers would receive a windfall or double recovery from the government if total unpaid CSRs can be recovered.
This was followed by briefs from the federal government and reply briefs from the insurers. The government generally argued that the Federal Circuit’s decision was correct, that the Supreme Court’s ruling in Maine Community Health Options did not address the question of damages like those at issue with respect to unpaid CSRs, and that there is a clear link between premium tax credits and CSRs.
The four petitions were discussed at the Supreme Court’s conference on June 17, and the Court denied the requests to review all four appeals on June 21.
With the appeals now over, the Federal Circuit’s decision in Community Health Choice stands and will reduce the amount that insurers could have recovered. The outcomes will differ by insurer and state, but many insurers receive much higher premium tax credits (for plans at all metal level tiers) as a result of silver loading, relative to what they would have received in unpaid CSRs. Given this dynamic, insurers and the federal government may simply settle the cases—or they could proceed to damages calculations before the Court of Federal Claims. During these proceedings, the government and insurers would attempt to recalculate damages and offset any potential unpaid CSRs (for 2018 and beyond) with higher premium tax credits. As discussed here, the Federal Circuit’s decision in Community Health Choice gave some guidance as to how those damage calculations should proceed.
Pending CSR lawsuits will also resume. Many lawsuits—such as those brought by Molina, Guidewell Mutual Holding Corporation, Health Alliance Medical Plans, Harvard Pilgrim Health Care, EmblemHealth, Blue Cross Blue Shield of North Dakota, and Blue Cross Blue Shield of Michigan—had been stayed pending resolution of the appeals. Some of these insurers filed multiple complaints for unpaid CSRs for different years, including separate complaints by Sanford Health Plan and Maine Community Health Options. At the same time, several insurers—such as Anthem, Cigna, Montana Health CO-OP, Harvard Pilgrim, Humana, Aetna, and MDwise Marketplace—filed recent or additional CSR complaints or added CSR claims to complaints over unpaid risk corridors payments. All of these insurers will soon have to file joint status reports alongside the government to outline next steps in the pending lawsuits.
State-Based Marketplaces Can Apply For $20 Million in Funding
On June 21, the Centers for Medicare and Medicaid Services (CMS) issued a notice of funding opportunity of $20 million for the modernization of state-based marketplaces. This funding was made available under ARPA, which directed the Secretary of HHS to award grants to state-based marketplaces to help modernize or update current systems or programs. The funding will help ensure that state-based marketplaces can implement the changes needed to comply with ARPA, including the new law’s temporary enhanced marketplace subsidies.
State-based marketplaces can use this funding for system, program, or technology modernization required to implement the changes under ARPA or comply with other federal marketplace requirements, such as reporting requirements for the state-based marketplace annual reporting tool or steps needed to resolve any audit findings. Examples cited by CMS include enhanced technology or updates that better enable consumer notifications, consumer assistance, stakeholder education or training, privacy and security, call center or appeal supports, staff training, and oversight and monitoring activities. The broader scope of the funding opportunity—beyond enhanced ARPA subsidies alone—may reflect the fact that many marketplaces have already rolled out the changes needed to enable some, if not all, of the new ARPA subsidies.
CMS will award up to 21 cooperative agreements to the 15 state-based marketplaces (in California, Colorado, Connecticut, District of Columbia, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Washington) as well as the six state-based marketplaces that use the federal platform (in Arkansas, Kentucky, Maine, New Mexico, Oregon, and Virginia). Full state-based marketplaces can receive up to $1.33 million while state-based marketplaces that use the federal platform can receive up to $800,000. Applications are due on July 20 and grants will be awarded in early September 2021. The $20 million in funding will be available through September 9, 2022. The notice of funding opportunity can be read by searching here for CFDA 93.525.