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In a ruling that could end up affecting many Obamacare insurers — and billions of dollars — a judge Thursday ordered the federal government to pay Oregon-based Moda Health more than $200 million that the insurer says it was shortchanged.
The ruling found that the government could not fail to honor a promise that entailed making payments amounting to $214 million to Moda Health under Obamacare's so-called risk corridor program.
That program, which is designed to offset losses from selling Obamacare plans, was created to help lure insurers into the Obamacare marketplaces.
But Moda and other Obamacare insurers to date have received just a slight fraction of the more than $8 billion that the federal government owes them under the program.
A number of Obamacare insurers have exited the market, or gone bankrupt, after not getting risk corridor payments they had counted on receiving.
Moda, which has lost money on its Obamacare business for three years, has gotten just $12 million from the risk corridor program, $214 million less than what the company says it was owed for the 2014 and 2015 plan years. The company filed suit against the government last year seeking the full amount.
"There is no genuine dispute that the Government is liable to Moda," wrote Judge Thomas Wheeler in his U.S. Court of Federal Claims order. "Whether under statute or contract, the Court finds that the Government made a promise in the risk corridors program that it has yet to fulfill. Today, the Court directs the Government to fulfill that promise."
"After all, 'to say to [Moda], 'The joke is on you. You shouldn't have trusted us,' is hardly worthy of our great government," Wheeler wrote.
If Wheeler's reasoning is applied by judges to another half-dozen similar cases brought by insurers, it could lead to billions in dollars in ordered payouts by the government.
"Today's decision is a validation of everything we have been saying," said Robert Gootee, president and CEO of Moda, Inc.
"All we ever were asking was for the federal government to do what it promised," Gootee said.
The federal Centers for Medicare and Medicaid Services, which administers the risk-corridor program, declined to comment on the decision, as did the U.S. Justice Department, which represents the government in the case.
The risk-corridor program, which is part of the Affordable Care Act, is designed to minimize the amount of financial risk that insurers run by selling individual health plans on government-run Obamacare exchanges.
Companies that lose money on their plans each year are supposed to receive payments to offset at least part of the loses from the federal government. In turn, the government collects a percentage of profits that other insurers make, which is then used lower the losses of the unprofitable insurers.
But Congress, after falling under Republican control subsequent to passage of the ACA, ended up barring payments under the program if they added to the federal budget deficit.
Because losses among Obamacare insurers were greater than profits, that meant the government would have had to increase the deficit if it made the full payments due insurers under the risk corridor program.
In 2014, the government collected just $362 million in risk corridor payments from profitable insurers, which was dwarfed the $2.87 billion in payments requested by unprofitable insurers.
As a result, for 2014 plans, the federal government paid out just 12.5 percent to insurers of what they were owed under risk corridor.
For 2015 plans, insurers received nothing, as the government used some of the money that it collected from profitable plans that year to add to payments made for 2014. The government has not yet announced what it will do for 2016 plans, which ended coverage less than two months ago.
The biggest payment owed is to Blue Cross Blue Shield of Texas, which has claimed more than $900 million in risk corridor payments, but received less than $46 million.
Wheeler, in his ruling in Moda's favor, said that the federal government had to honor the promise originally made to insures when the ACA became law, regardless of whether Congress later tried to hobble that law by barring spending that added to the deficit.
"The Court finds that the Government has unlawfully withheld risk corridors payments from Moda, and is therefore liable. The Court finds that the ACA requires annual payments to insurers, and that Congress did not design the risk corridors program to be budget-neutral," Wheeler wrote.
The judge also wrote, "The ACA created an implied-in-fact contract with insurers like Moda under which the Government owed Moda risk corridors payments if (1) Moda sold [health plans] on the Exchanges and (2) those [plans] were loss making," Wheeler wrote.
"Moda sold [health plans] and suffered losses.The Government has breached the contract by failing to make full risk corridors payments as promised. Therefore, there is no genuine dispute that the Government is liable to Moda under the implied-in-fact contract, and Moda also is entitled to partial summary judgment on that basis," Wheeler wrote.