Judge tells insurers owed CSR: ASK FOR MO MONEY

Amy Lotven reports on a critical case slowly making its way through the courts. Insurers are suing the federal government for Cost Sharing Reduction payments that they contend they are owed. President Trump cut off these payments in October 2017 in the hope/expectation that it would damage the ACA individual market. It has strengthened the market instead as subsidized buyers earning between 200-400 percent of the Federal Poverty Level are seeing tremendous discounts, the best discounts.

I’ll quote from the article (behind a paywall) for more context:

The U.S. Court of Federal Claims handed issuers major wins in four cost-sharing reduction (CSR) cases, including a class action suit brought by Wisconsin’s Common Ground Health Cooperative in which Judge Margaret Sweeney ruled that the government is responsible for reimbursing plans unpaid CSRs in 2017 as well as in 2018, despite the silver-loading workaround. Sweeney issued that decision on Friday (Feb. 15), the same day she ruled in favor of Texas non-profit Community Health Choices and Maine Community Health Options.
Sweeney had certified Common Ground as a class action in April; as of January there were 91 issuers involved, according to Health Affairs.

Charles Gaba has a good summary of the ruling at ACASignups.net

Basically, the judge is saying that while the #SilverLoading workaround is very clever and does solve the problem on paper, it doesn’t make any difference legally or contractually. The federal government owes the insurance carriers the CSR reimbursement payments for 2018 regardless of whether they found another way to cover their CSR expenses… udge Sweeney just ordered that Community Health Choices is entitled to be reimbursed for all of the CSR funds they paid out in 2018 even though they jacked up their premiums to cover that amount.

Everyone can agree that full payment of CSR for the last quarter of 2017 is reasonable. Insurers did not have a chance to mitigate the damage. The shock of this ruling is that the judge is saying that even though insurers were able to (mostly if not completely) mitigate the CSR termination damage in 2018, they are still owed the full amount. This is surprising to me.

I am assuming that this decision will be quickly appealed. I am assuming that this set of cases will eventually make it to the Supreme Court as it is one hell of a huge pot of money under dispute. Nicholas Bagley at The Incidental Economist has been aggressively tracking the legal implications of this series of disputes notes that the mitigation question is fascinating for lawyers:

The proper measure of expectation damages, then, is the full amount of promised reimbursement. That amount will continue to accrue for every month that Congress refuses to appropriate the money. If that’s right, the question isn’t whether Congress will pay the cost-sharing payments. It’s when.

But matters may not be so simple. In measuring damages, the Court of Federal Claims will also inquire into mitigation—a principle that might be familiar to you if you’ve ever thought about breaking a lease on an apartment. Although your landlord can sue you for any rent owed for the months remaining on the lease, he also has a duty to find a new tenant. If he does, you only have to compensate your landlord for the time that the apartment was empty. The landlord has mitigated his losses.

The same principle should kick in here. Silver loading has allowed insurers to sidestep most of the harm associated with the loss of the cost-sharing subsidies. Insurers haven’t hemorrhaged customers; instead, they’ve adapted. Indeed, some insurers are better off now than they were before: as premium subsidies increase, they’ll get more customers signing up for their gold and bronze plans.

In short, insurers have mitigated a large part of their losses. Giving them the full amount of the cost-sharing money wouldn’t put them in the same position they would have been in if the federal government adhered to its promise. It would give them a windfall. Contract law doesn’t require the courts to make contracting parties even better off than they would have been in the absence of a breach.

* * *

That doesn’t mean that insurers will lose. The default rule is still that insurers should be paid what they were promised, and the onus is on the government to prove that they’ve mitigated their losses. That’s not an easy burden to discharge: it’s hard to know what the world would have looked like if the cost-sharing payments had been made, so it’s hard to know whether any given insurer is better off or worse off now that they’ve been terminated. The factual inquiries will be demanding.

Besides a likely SCOTUS ACA case that is not existential to the functioning of the law (a new experience), the outcome of this case will be an intriguing split of benefits. If the ruling stands, insurers will collect a windfall that all accrues to net profitability. A significant portion of that windfall will be distributed to consumers in the form of MLR rebates even as the modestly subsidized (200-400 percent FPL) see great deals. If the government position prevails where 2017 is paid out and 2018 is mostly if not entirely mitigated, then the insurers benefit from a one-off cash infusion and small MLR rebates are paid out.






9 replies
  1. 1
    Baud says:

    The shock of this ruling is that the judge is saying that even though insurers were able to (mostly if not completely) mitigate the CSR termination damage in 2018, they are still owed the full amount. This is surprising to me.

    Agree. This will get reversed.

  2. 2
    MayM says:

    I’ve been purchasing insurance on the exchanges since 2014. Thanks to Trump’s “sabotage” and the resultant silver-loading, I’ve been able to purchase much better plans at lower prices for 2018 and 2019. If the insurance companies win and receive CSR payments moving forward, does that mean my premiums will spike and I’ll be forced to buy a crappier plan as a result in 2020? Your Health Affairs article describes silver loading as a “windfall” for consumers but it doesn’t feel that way to me as I try to live under the weight of student loan debt, child care costs etc. I’m on a gold plan now and have actually been able to afford to access health care (other than a yearly physical) for the first time since moving to the exchange. I would really hate to lose that.

  3. 3
    burnspbesq says:

    No duty to mitigate would be the functional equivalent of punitive damages. I could live with it, given how egregiously lawless the government’s actions were.

    It would be even better if it could come out of Trump’s pocket.

  4. 4

    @MayM: Really good set of questions.

    1) If insurers win and get 2018 payments (and 2019… and 2020) no one is really sure what happens to premiums. I can see a couple of different scenarios of increasing strangeness but equal likelihood.

    2) Compared to the design of the ACA as written, it is a windfall as it makes you (and many others) much better off. I think that pragmatic reality has to be the new baseline of solving future problems. Health insurance should be useful for care.

  5. 5

    Interesting. Common Ground (one of the few remaining non-profit co-ops formed under the ACA) is the insurer my family uses. We love them… and now it looks like they might be clawing some money back from the Trump admin, so hopefully that will help our rates.

  6. 6

    @Thad Phetteplace: Don’t expect the money to flow (if ever) for at least several years. This is potentially a $100 billion case so I would be shocked if SCOTUS does not take it on the cert grounds of “Good Lord that is a whole lot of money” legal doctrine….

  7. 7

    […] opine on what’s likely to happen on appeal. (Amy Lotven first broke the story; Charles Gaba and Dave Anderson both have good posts on the recent […]

  8. 8

    […] opine on what’s likely to happen on appeal. (Amy Lotven first broke the story; Charles Gaba and Dave Anderson both have good posts on the recent […]

  9. 9
    Ken says:

    A knowledgeable commentator in the Vox health care Facebook group suggests few insurers will seek CSR reimbursement since it is a lot of trouble (though, class action), and many insurers will just end up having to rebate the amounts back to their insureds under the MLR rules, which is also a lot of bother and soesn’t help their bottom line. I sent my insurer and NM state reps/insurance commissioner messages asking about their views on this. Seems to me state regulators, as part of the rate review process(?), ought to force insurers to file for CSR reimbursement, even if–especially if–the insurers will have to rebate the settlement proceeds under the MLR rules. Any thoughts on this?

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