Humana is suing the federal government to recover more than $600 million in Affordable Care Act-related funds because it asserts that the U.S. Department of Health and Human Services induced insurers to participate in the federal exchanges under false pretenses.
In its suit, filed in the U.S. Court of Federal Claims, the Louisville-based insurer said that the federal government induced insurers to participate in the exchanges set up by the ACA by promising to help them financially in cases of significant losses — only to tell them later that the money to cover those losses might not be available.
To keep health insurance premiums stable and to protect insurers against uncertainty in claims’ costs during the first three years of the ACA, also known as Obamacare, the Centers for Medicare and Medicaid Services, which is part of HHS, implemented mechanisms that aimed to spread the insurers’ risk from consumers with lots of health problems and high health care costs.
One of those mechanisms, the temporary risk corridor, allowed the government to collect money from insurers if the health insurance premiums they collected exceeded claims costs by a certain amount and to redistribute those dollars to insurers whose premium collections fell short of claims costs by a certain amount.
The problem: The amount of excess profits has been dwarfed by the amount of excess costs. Many big insurers, including Humana and Aetna, have said that the cost of medical care for customers they have gained through the exchanges, which are a central part of the ACA, have exceeded, by far, the health insurance premiums those customers have paid. Some insurers, including Humana, won’t be offering ACA plans next year, in part because they have not been able to generate a profit from ACA customers.
CMS said last year that not enough insurers collected excessive profits from ACA customers — and that too many insurers incurred significant losses. That meant the government collected too little risk corridor money from successful insurers to cover the dollars it owed the insurers who struggled with customers they gained through the exchanges.
For payments for the year 2014, CMS collected $362 million in risk corridor payments from successful insurers — but it owed $2.87 billion to the struggling insurers, including Humana.
The agency announced in late 2015 that it would pay the struggling insurers only 12.6 percent of the money they were supposed to get under the risk corridor mechanism for 2014.
About a year ago, CMS announced that preliminary risk corridor collections for 2015 indicated that the shortfall was continuing and that all new dollars collected would be used toward the prior year’s payments and that “no funds will be available” for any money owed for 2015.
Humana late last year had lowered its earnings projection after it said that it won’t be able to collect $591 million in risk corridor payments.
CMS has not announced risk corridor projections for the 2016 year, but court documents indicate that agency would incur another shortfall.
Humana said in the suit that it had received only a partial payment for 2014 — and nothing for 2015 and 2016, and that CMS owes Humana about $244 million for 2014, $214 million for 2015 and $191 million for 2016.
Humana: CMS’ budget neutral claim nonsense
Humana also said that it agreed to participate in the exchanges in May 2013, but that CMS did not say until the following year that the risk corridor program had to be budget neutral, which meant that any shortfalls would be covered only if Congress appropriated additional dollars, which, so far, it has not.
Humana argues in its suit that the law does not state that the program must be budget neutral.
“The statute is clear that the government will share in the losses for plans with higher than anticipated costs,” the suit claims. “Accordingly, if all plans experienced higher than anticipated costs, the government would be obligated to make payments even though there would be no payments in from insurers.”
Humana also said that the government’s claim about budget neutrality makes no sense because if insurers had known that the program was to be implemented on a budget neutral basis, many would have declined to participate, which would have undermined the program’s purpose.
“The purpose of the (risk corridor program) … was to induce health insurer participation in the health insurance exchanges by mitigating their risk of loss,” Humana said. “The program could not serve that purpose if, after incurring potentially millions of dollars in unbudgeted expenditures over a benefit year, (insurers) could not depend on the government to make timely reimbursements (it) owed.
“The ACA would have failed to attract sufficient entrants into the marketplace because the investment would have been too risky,” the insurer said.
“The government’s failure to make full and timely risk corridors payments … is a material breach of the implied-in-fact contract, and (Humana) has been damaged by this failure.”
The insurer asked that the court order the government to pay damages of $611,018,151.43, plus court costs, litigation expenses and attorneys’ fees. The case is being handled for Humana by Stephen J. McBrady, partner with Washington, D.C.-based law firm Crowell & Moring.
The government has not yet filed a response to the suit. CMS could not be reached Monday.