Health Insurer Sues for Billions in Lost Federal Payments

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February 24, 2016; Portland Business Journal

Oregon-based Health Republic Insurance Company has filed a class action lawsuit against the federal government, seeking to recover as much as $5 billion in “risk corridor” payments promised to insurers in 2014 as part of the Affordable Care Act (ACA), often referred to as Obamacare.

Health Republic was one of 23 health insurance “consumer-oriented and operated plans,” or CO-OPs, established under the ACA as a nonprofit, “public option” alternative insurance provider on the health insurance exchanges. The organization’s homepage now features stark “Goodbye and Good Luck Oregon” and “No Health Republic Insurance Company health policies remain in effect” messages. It continues to operate to pay claims made against policies issued during 2014 and 2015.

Risk corridors were included in the ACA as a three-year transition strategy to assure insurance companies they wouldn’t lose money by offering policies through the new healthcare exchanges established under the law. The transition strategy was deemed necessary because there were no actuarial bases for determining the cost of insurance using the new terms established for the exchanges under the ACA. However, rather than covering all losses, risk corridor payments fell short by more than $2.5 billion in the first year, and the shortage is expected to be even higher in 2015. The payment shortage, coupled with the severe losses experienced by many health insurance companies, have caused some to cease offering policies in the exchanges.

The risk corridor payment shortages can be blamed on insurance companies miscalculating the true cost of providing policies in the exchanges, resulting in higher losses and fewer profitable insurers making payments into the risk corridor fund. Another reason for the shortfalls was Congress passed legislation in 2014 forbidding the federal government to use funds other than risk corridor revenues to make risk corridor payments.

Health Republic is seeking full payment for itself and all other insurance companies that were eligible for risk corridor relief in both 2014 and 2015. Proceeds from the lawsuit could be used to discharge debts owed by the insurance cooperatives to the federal government, including $60 million in loans owed by Health Republic.—Michael Wyland