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.

Common Ground, et al, win class action against admin for cutting off CSR payments. Issuers can get reimbursement for 2017 and 2018, despite silver-loading workaround that led to increased tax credits https://t.co/5906hIjORj

— Amy Lotven (@amylotven) February 17, 2019

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.

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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.