The ACA at the Supreme Court Again

The Supreme Court will be hearing an ACA related case this morning. This is not an existential to the law challenge. It is a far simpler question: Does the US federal government owe a bunch of insurers money or was a promise never made?

The first three years of the ACA individual market had three stabilizers: risk adjustment, reinsurance and risk corridors. Risk adjustment is permanent. It moves money from insurers covering people coded as healthy to insurers covering people coded as less healthy. Reinsurance was a significant injection of non-premium dollars to insurers that had large catastrophic claims. Reinsurance tapered down at the end of the 2016 plan year. It has been reintroduced as a very limited federal catastrophic program and in state based 1332 waivers. Risk-corridors were two-way protection against actuarial oopsies. If insurers made a lot more money than expected due to premiums being too high for a relatively healthy risk pool, they would have paid the federal government back. If insurers lost a lot of money because premiums were too low compared to a sicker than expected risk pool, the federal government would eat a significant chunk of the losses.

As we know insurers lost a ton of money. The risk corridors were due to net pay out about $12 billion dollars to cover some of the losses from 2014-2016. Insurers were counting on risk corridors to stay in business. However the end of 2014, the Cromnibus was passed. One provision of that budget bill was that risk corridors now had to be revenue neutral. That means insurers that had taken large losses in 2014 and had priced their 2015 products based on the assumption that risk corridors were valid receivables for reserve calculations were going to eat an unexpected huge revenue and capital cushion shock. That sent quite a few insurers into liquidation with most of the co-ops blowing up due to this being a contributing factor.

The insurers sued. They argued that without risk corridors, they would not have agreed to enter the ACA markets on the terms that they did.

Now what does this mean for the ACA?

Not much. This is an interesting administrative, constitutional and appropriations law question. However, if the insurers win or partially wins, the money would be a one-off windfall. Some of it might flow as MLR rebates but since quite a few insurers had written this off as bad debt and sold the claims to third parties, the odds of much if any of the money flowing to consumers is low. CMS could conceivably draft interim final rules to address the money flow. But this is mainly an oddity of a case that raises interesting appropriations law questions about what constitutes a promise of the federal government and not an ACA question of particular relevance.