Court Affirms CSR Reimbursement, But Amount Still Questionable

On August 14, the Federal Circuit court made two decisions affecting payers which centered around practices meant to lower costs for Affordable Care Act marketplace enrollees: government reimbursement for silver plan cost-sharing and refundable tax credits meant to lower premiums.

The Sanford Health Plan decision affirmed that payers should receive cost-sharing reduction reimbursement from 2017 but the Community Health Choice decision qualified that payers might not be fully compensated based on 2018 premium tax credits.

Cost-sharing includes deductibles, copayments, or any part of insurance that an enrollee covers. Under the Affordable Care Act, silver plan enrollees are eligible for reduced cost-sharing and the Secretary of the Department of Health and Human Services (HHS) is bound to reimburse payers the amount that enrollees will no longer be paying.

However, controversy arose around the Secretary’s authority to carry out this act.

“In October 2017, the Secretary stopped making reimbursement payments, due to determinations that such payments were not within the congressional appropriation that the Secretary had, until then, been invoking to pay the reimbursements,” the Sanford Health Plan decision summarized.

As a result, Sanford Health Plan and Montana Health Co-Op filed the same complaint against the government’s practice, demanding their reimbursements for reduced cost-sharing in 2017. The court decided that they should be reimbursed for the halted payments, an opinion which the federal government appealed.

On August 14, 2020, however, the Sanford Health Plan decision affirmed the lower court’s judgement that Sanford Health Plan should be reimbursed.

“We conclude that Maine Community makes clear that the cost-sharing-reduction reimbursement provision imposes an unambiguous obligation on the government to pay money,” the Sanford Health Plan decision decided.

The Supreme Court’s decision on behalf of Maine Community Health Options was key to the court’s decision in Sanford Health Plan, even though risk corridors and cost-sharing reduction reimbursement are different processes.

The Supreme Court found that the risk corridors statute was “one of the rare laws” which could allow the government to be appropriately sued for damages.

The statute’s repeated use of “shall pay” unequivocally communicated that the government had the responsibility to reimburse payers as promised. Importantly, the law’s language contained nothing about the government needing to have available funding in order to reimburse payers.

Furthermore, the risk corridors formula is retroactive: the government reimbursed payers after they had temporarily covered the cost-sharing reduction. Thus, changes to or reinterpretations of the statue cannot apply to payments for prior years, even though the government may have not yet issued the reimbursement. Those years were still subject to the statute.

Thus, the Maine Community Health Options court case, which ultimately required the government to pay insurers the $12 billion in withheld risk corridor payments, contributed the framework for the Sanford Health Plan decision.

In the Sanford Health Plan case, the court also did not find any way in which premium tax credits could satisfy the government’s obligation to pay risk corridor or cost-sharing reimbursements. Premium tax credits are a federally-subsidized, refundable tax credit applied to enrollees’ premiums to bring down premium costs.

The government had tried to argue that premium tax credits could offset the lack of cost-sharing reduction reimbursement. When payers were not reimbursed for 2017 cost-reduction payments, they raised silver-level premiums in 2018.

By doing so, payers increased premium credits that they received from the government for silver plan enrollees—as well as other plans’ enrollees—and offset the money they lost in 2017 through denied cost-sharing reduction payments, the government argued.

Sanford Health Plan, however, did not receive premium tax credits, a fact which both the court and the federal government acknowledged.

While it did not have a direct effect on the Sanford Health Plan case, the premium tax credits argument played a key role in the court’s determination of damages when it turned to the Community Health Choice case.

In 2018, Sanford Health Plan and Community Health Choice raised their premiums and used premium credits to offset their losses from the previous year, the government said.

“The government argues that silver loading was a direct result of the insurers’ mitigation efforts, i.e., increasing premiums for silver-level plans, and that the insurers’ recovery must be reduced by the additional payments the insurers received in the form of tax credits,” the Community Health Choice case explained.

The claims court had rejected this argument and required the government to pay Sanford over $360,000. But the federal circuit court accepted the argument and remanded this portion of the decision, sending it back to the lower court to recalculate how much the government should pay with this premium credit offsetting in mind.

The lower court will need to make this decision based on three factors, according to the federal circuit court’s guidance.

First, it will need to consider how Sanford Health Plan’s and Community Health Choice’s premium increases might have been caused by other factors in 2018. This will increase the government’s financial responsibility if factors other than the withheld cost-sharing reduction payments are proven to have significant influence.

Second, the claims court will need to determine whether the government’s financial responsibility might be lower if the 2018 premium increase had no effect on the plans’ other Affordable Care Act marketplaces. In some cases, raising premiums for silver plans has had an effect on other marketplaces as well, further boosting premium tax credits for payers.

Lastly, payers will have to convince the court regarding how much their tax credit increase had to do with the withheld cost-sharing reduction reimbursement.

Thus, a key outcome for this case has yet to be determined.