Supreme Court: The ACA and Risk Corridor Obligations

The U.S. Supreme Court decision today in Maine Community Health Options v. United States, is a major decision affecting healthcare and resolving a significant Obamacare dispute. The Affordable Care Act famously established online exchanges where insurers could sell their healthcare plans. It included the now-expired “Risk Corridors” program aimed to limit the plans’ profits and losses during the exchanges’ first three years (2014-16). The Act contained a formula for computing a plan’s gains or losses at the end of each year, providing that eligible profitable plans “shall pay” the Secretary of the Department of Health and Human Services (HHS), while the Secretary “shall pay” eligible unprofitable plans. But the Act did not appropriate funds that the Secretary could dispense or cap the amounts that the Secretary would pay to unprofitable plans. Nor was there any budget neutrality stated in the Act. The program was something less than a great success and, after three years, in which unprofitable plans outnumbered those that were profitable, the net deficit was more than $12 billion. But the Centers for Medicare and Medicaid Services (CMS) couldn't make any payments to unprofitable plans because, each year, its budget appropriation included a rider preventing CMS from using the funds for Risk Corridors payments. Four unprofitable plans brought suit against the government under the Tucker Act, alleging that the ACA obligated the government to pay the full amount of their negative deficit. With Justice Sotomayor writing for seven other Justices (Alito, J. dissented, and Thomas, J. and Gorsuch, J. did not join one section of the majority opinion), the Court agreed with the plans and reversed the Federal Circuit's holding that while the ACA initially created an initial obligation, the subsequent riders vitiated it.

Instead, the Court flatly held that the Risk Corridors statute created a government obligation to pay insurers the full amount resulting from the operation of the risk formula because the government may incur an obligation directly through statutory language, without also providing details about how the obligation must be satisfied. The Court was influenced by the use of the word "shall" in reaching that determination and the use of the word "may" in other portions of the law. In that nothing in the law suggested budget neutrality -- that the payments out would be connected to the payments in, the statute was afforded its plain meaning. Nor, because implied repeals are disfavored, the rider provisions were given no effect.

The Court also held that the Administrative Procedure Act did not bar this Tucker Act suit, whose exceptions don't apply, because this was not a claim for prospective payment by the Secretary but for the recovery of specifically-calculated compensatory sums for past conduct.