One of Obamacare’s failed consumer oriented and operated plans is suing the government for what could add up to $5 billion.
On Wednesday, Health Republic Insurance of Oregon filed a $2.5 billion class action complaint with the U.S. Court of Federal Claims to seek payments owed for itself and other insurers. Dawn Bonder, Health Republic CEO, told the Portland Business Journal the amount they’re hoping to recover could be as much as $5 billion.
Health Republic, which closed its doors at the end of 2015, attributed its demise to an announcement from the Department of Health and Humans Services last October that the “risk corridor program” would pay a prorated rate of 12.6 percent of the funds from 2014 that insurance companies requested and expected to receive.
>>>Two More Government-Funded Co-Ops Created Under Obamacare to Close
The Affordable Care Act, colloquially known as Obamacare, designed the temporary risk corridor program to run from 2014-2016, helping to entice insurers to participate by acting as a safety net and cutting down on risk associated with insurance companies entering the new Obamacare health care exchange market.
The Centers for Medicare and Medicaid Services paid insurers $362 million of the $2.87 billion requested through the risk corridor program for 2014. Insurance companies did not receive over $2.5 billion in requested funds.
“The government’s failure to satisfy its monetary obligations and make its required risk corridor payments will have wide-reaching effects on millions of Americans in the form of restricted health plans and higher insurance premiums,” the lawsuit says.
The lawsuit is filed against the U.S. government, acting through the Centers for Medicare and Medicaid Services and its parent agency, the Department of Health and Human Services.
Health Republic determined it is owed $7,068,851 under the risk corridor program for 2014. It estimated it will be owed about $15 million in risk corridor payments for 2015 (the exact amount will be able to be determined later this year).
The lawsuit seeks on behalf of Health Republic and other similarly situated insurance companies the immediate payment in full for 2014 risk corridor receivables and for 2015 risk corridor receivables—once they are determined. Other issuers and insurers, not just Health Republic, could benefit financially from the lawsuit.
“Health Republic did exactly what we were asked to do under the ACA [Affordable Care Act]: We designed and priced our plans for the market we hoped would materialize, not for the market we feared would materialize,” Bonder said in a prepared statement, reported the Portland Tribune.
Like every health insurer in the post-ACA market, we knew the costs of this new population could be astronomical, but we couldn’t be sure until we learned who purchased our plans and analyzed their medical costs under the new ACA plans. Without the risk-sharing provisions in the ACA, especially risk corridor, we, along with every other health insurer across the nation, would have been forced to think long and hard about how to proceed in these new uncharted waters created by the ACA. It is unconscionable for the government to default on their obligation to pay the risk corridor amounts owed in a timely manner.
Health Republic of Oregon is one of the 23 original health co-ops created under Obamacare. The government loaned $2.4 billion to the co-ops—22 of them lost money in 2014 and 12, including Health Republic, have shuttered since.
At least six of the failed co-ops pointed to lower-than-expected risk corridor payments as a reason for their flop.
“The problem that you have here is some insurers basically counted on this money and the others didn’t,” Ed Haislmaier, a senior research fellow in health policy studies at The Heritage Foundation, told The Daily Signal. “That’s why half of the co-ops are still with us.”
Health Republic of Oregon received $60.6 million in taxpayer-backed, start-up loans before it began providing health insurance coverage in 2014.
Full risk corridor repayment would allow Health Republic to pay back the federal loans, Bonder said, the Portland Business Journal reported.
Haislmaier wrote in an article published in Forbes:
Differences in management styles were also reflected in the differing assumptions that insurers made about the ACA’s ‘risk corridor’ program. Under that program, insurers with higher than expected gains pay into a pool, with those funds then distributed to carriers with larger than expected losses. Several of the failed co-ops have publicly blamed the federal government for pushing them over the edge by not giving them sufficient risk corridor payments. In particular, they fault the administration for misleading them about how much money would be available and Congress for insisting that the program operate on a budget-neutral basis.
The lawsuit points to provisions enacted by Congress in spending bills for both 2015 and 2016 that prohibit taxpayer dollars being used to bail out insurers under Obamacare’s risk corridor program, as a reason insurers did not receive the full $2.5 billion in risk corridor funds.
>>>How the Spending Deal’s Risk Corridor Provision Would Affect Obamacare Co-Ops
“Health Republic’s personal experience demonstrates the cascading, fatal effects the Spending Bill Provisions have had, even on companies that did everything right,” the complaint says.
When it began providing insurance coverage under the Affordable Care Act, Health Republic offered plans with bronze, silver, gold and platinum-level coverage all at extremely competitive prices. It bears noting that Health Republic was not the lowest priced plans in the market; their rates were in the middle of the pack of the 10 carriers listing on the Oregon insurance exchange. Had Health Republic known the risk corridors could not be relied upon as a safety net, it would have increased its rates—not to cover expected losses, but to cover the risk of greater than expected losses.
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