Source: https://www.stradley.com/insights/publications/2017/02/the-dispatch-february-2017
Timestamp: 2019-04-23 14:34:55+00:00

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The federal government is liable to Moda Health Plan, Inc. for failing to make risk corridor payments totaling $214 million, a federal judge ruled last week.
The risk corridors program is a risk-reduction mechanism established by the Affordable Care Act (ACA) to encourage insurer participation in new initiatives. Because new initiatives (such as federally funded health exchanges) lacked historical data necessary for underwriting, the risk-reduction mechanisms protected early adopters from significant losses. The program provided for government reimbursement of certain losses for qualified health plans on the health exchanges, but required profitable health plans to pay excess gains to the government.
A Recent Risk Corridor Litigation Success: Moda Health Plan, Inc. v. U.S.
Moda Health Plan, Inc. (Moda) suffered $214 million in losses after being paid only 12.6 percent of its claimed risk corridor payments for 2014 and nothing for 2015. To recover the outstanding balance of its risk corridor payments, Moda sued the government. Moda argued that the government was obligated under the ACA to make risk corridor payments or, in the alternative, that the risk corridors program was an implied-in-fact contract between the insurers and the government. The government denied these allegations, largely relying on Congress’ failure to appropriate money for the program and its declaration in the appropriations bill that the risk corridors program be budget-neutral.
In Contrast, the Unsuccessful Land of Lincoln Mut. Health Ins. Co. v. U.S.
Judge Wheeler’s decision contrasts with another recent decision in the Court of Federal Claims: Land of Lincoln Mut. Health Ins. Co. v. U.S.4 In Land of Lincoln, a different judge – Judge Lettow – denied Land of Lincoln’s claim for risk corridor payments. Judge Lettow held that the ACA was ambiguous regarding the government’s responsibility for deficits or excess funds in the risk corridors program and, further, risk corridor payments were not required by express or implied contract with the government. Congress issued its declaration that the risk corridors program be budget-neutral before the 2015 plan year, and according to Judge Lettow’s analysis, it was not reasonable for an insurer to expect to be paid the full risk corridors obligations in 2015.
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.” Brandt v. Hickel, 427 F.2d 53, 57 (9th Cir. 1970).
Several similar cases remain pending, including cases brought by Health Republic Insurance Company, Highmark and CoOpportunity Health. Although the government indicated a willingness to settle the matters early in litigation, it has been vigilantly defending them. In addition to financial considerations, political factors may affect the decision to defend or settle these cases. On one hand, the Trump administration has sharply criticized the law it is defending in these cases, but on the other hand, settling the claims could be viewed as a bailout for the insurance companies. Still, bailout may be more desirable than the risk of market collapse associated with nonpayment. Many insurers have faced significant adverse results from the uncertainty around the risk corridors program.
As more decisions are issued in these cases, insurers should get a clearer idea of the likelihood of government payouts. The U.S. Court of Appeals for the Federal Circuit may weigh in to resolve the conflicting guidance from the Court of Federal Claims, as Land of Lincoln appealed its unfavorable decision and the government is likely to appeal the Moda decision. Until then, Stradley’s Insurance Practice Group is available to answer any questions about the risk corridors program, the ACA or other regulatory matters.
1 Centers for Medicare & Medicaid Services, Risk Corridor Payment for the 2014 Benefit Year (Nov. 19, 2015), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/RC_Obligation_Guidance_11-19-15.pdf.
2 Centers for Medicare & Medicaid Services, Risk Corridor Payment and Charge Amounts for the 2015 Benefit Year (Nov. 18, 2016), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-RC-Issuer-level-Report-11-18-16-FINAL-v2.pdf.
3 Moda Health Plan, Inc. v. U.S., No. 16-649C, 2017 WL 527588 (Fed. Cl. Feb. 9, 2017).
4 Land of Lincoln Mut. Health Ins. Co. v. U.S., 129 Fed. Cl. 81 (2016).
Stradley Ronon received top marks in several practice areas in the 2017 U.S. News – Best Lawyers “Best Law Firms” publication, including 13 national rankings and 13 top-tier rankings in Philadelphia. The firm’s insurance law practice group was one of the practice areas ranked both nationally and in the top tier in Philadelphia.
Sam Arena has been elected to a two-year term as a member of the governing body of the American Bar Association Tort Trial & Insurance Practice Section (TIPS), TIPS Section Council.
Sam and Nicole Stover co-authored a chapter in the Fourth Edition of Financial Institution Bonds, published by the American Bar Association. The chapter, titled “Insuring Agreement (B): On Premises Coverage,” provides analysis and commentary regarding the On Premises coverage found in the Surety & Fidelity Association of America’s Financial Institution Bond and the Insurance Services Office’s Financial Institution Crime Policy.
Twenty-three Stradley Ronon attorneys were named to the recently released 2017 edition of The Best Lawyers in America, regarded as a definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Sam Arena and Steve Davis from the insurance practice group were included on this list.
Steve Davis moderated a panel entitled, “Insurance Department General Counsel Discussion,” at the Property Casualty Insurers Association of America’s Northeast General Counsel Seminar in Philadelphia.
Jana Landon was part of the panel at the AON Financial Services Group National Conference discussing cybersecurity litigation trends. She was also a panelist for, “Attorney Ethics/Social Media/Data Privacy,” at the Eastern District of Pennsylvania Bankruptcy Conference in Philadelphia. Jana was also part of the panel, “Evolving Cyber Threats,” at the Association of Insurance Compliance Professionals Annual Conference in Orlando, Florida. Jana was a featured speaker at the Chamber of Commerce of Southern New Jersey’s “Cybersecurity Workshop” in Voorhees, New Jersey.
Craig Blackman and Jana presented the seminar, “How to Protect Your Nonprofit from Cyber Attacks,” in Philadelphia. The session was moderated by Catherine M. Ward.
Stradley Ronon was honored as the top litigation department among Pennsylvania’s midsize law firms in The Legal Intelligencer’s “Legal & Litigation Departments of the Year” supplement. The publication chose the winners “based on the big victories and important cases that demonstrated why clients chose them when litigation was on the table.” Stradley Ronon was praised for its “emphasis on efficiency” and ability to determine the issues most important to a client.
Jana Landon is moderating a cybersecurity panel entitled Beyond Breach: Everything You Need to Know About Cyber on March 23 at Philly I-Day. Philly I-Day is the Delaware Valley’s premier educational and networking event for insurance and risk management professionals.

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