Supreme Court ACA Reimbursement Case Will Have Minimal Effect On Big Insurers

A Supreme Court case tackling whether the federal government must reimburse health insurers that lost money participating in the Affordable Care Act is worth billions collectively and will be closely watched — but the outcome is unlikely to have a big impact on the insurers’ bottom lines.

What's At Stake

The companies say the government owes them about $12 billion after Congress declined to fund a program meant to entice them to participate in the ACA, also known as Obamacare.

The companies were agreeing to take customers with unknown risk, so the original law envisioned reimbursements for companies that lost significant money. But Republicans quickly began calling reimbursements a “bailout” and canceled them.

While the overall dollar amounts the companies were denied is significant — and some companies dropped out of ACA after being shorted — it’s a small part of most remaining companies’ overall finances. Some have already moved on.

At least one of the largest health insurers, Humana Inc HUM, has already written off about $583 million that it had expected, according to Modern Healthcare.

Other large, publicly traded health insurers have also written off the uncollected money, Leerink Partners LLC analyst Ana Gupte told The Wall Street Journal.

Now, whatever the justices decide, the case is “not impacting the balance sheet” at those companies, Gupte said. If they do win, the payout would be “found money," she said.

Profits Are Back

There’s also been a turn in the ACA marketplace: insurers are starting to again see profits.

The companies increased rates significantly in the early years to deal with high costs and are now starting to make money on ACA customers, and rate hikes are slowing.

In states where insurers have made rate filings for 2020, several are averaging single-digit percentage increases. In Maryland, the average is negative, a 2.9% premium decrease.

Case Background

The risk corridor program was meant to coax insurers to provide ACA coverage by having the federal government cover some losses of companies that had the highest payouts.

Some of the money came from other insurers — those that profited heavily in the program had to fork over some profits to those that lost.

But the amount coming in from profitable insurers was never enough to meet the claims by companies losing money.

When the government decided not to make up the difference, the shortfall was a big reason for the large premium hikes in the early years of Obamacare.

Insurers who were expecting the risk corridor subsidy payments, including Moda Health Plan Inc., of Portland, Oregon, Maine Community Health Options and Land of Lincoln Mutual Health Insurance, filed suit.

Initially a claims judge agreed with them, but a federal appeals court ruled last year that Congress was within its right to change its mind on the payments.

The health insurance industry argues ACA premiums were intentionally kept low by states because the companies could expect reimbursement for losses through the risk corridor program.

While large publicly traded insurers aren’t necessarily relying on reimbursements now, smaller ones could see their ability to participate in the ACA compromised, and some have dropped out of the ACA because of the decision not to make the payments.

And some of the not-for-profit ACA co-op insurers collapsed because the payments didn’t come.

The end of the payments “compromises those companies’ ability to continue providing health insurance coverage, transfers costs to consumers … and undermines Congress’s stated goal in adopting the ACA — providing health insurance coverage for millions of Americans who previously were uninsured,” an industry group said in a brief supporting the plaintiffs.

Even for some smaller insurers, the money they claim is owed to them would be small.

For example, another company that originally sued, Sioux Falls, South Dakota-based Sanford Health, said it was owed $9 million — in a year in which its operating revenue was over $4 billion.

The case, which combined individual lawsuits from the three plaintiffs, will be heard during the court’s next term, which starts in October.

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