892 F.3d 1311 (Fed. Cir. 2018), 2017-1994, Moda Health Plan, Inc. v. United States

Docket Nº:2017-1994
Citation:892 F.3d 1311
Opinion Judge:Prost, Chief Judge.
Party Name:MODA HEALTH PLAN, INC., Plaintiff-Appellee v. UNITED STATES, Defendant-Appellant
Attorney:Steven Rosenbaum, Covington & Burling LLP, Washington, DC, argued for plaintiff-appellee. Also represented by Shruti Chaganti Barker, Caroline Brown, Philip Peisch. Alisa Beth Klein, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appella...
Judge Panel:Before Prost, Chief Judge, Newman and Moore, Circuit Judges. Newman, Circuit Judge, dissenting.
Case Date:June 14, 2018
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1311

892 F.3d 1311 (Fed. Cir. 2018)

MODA HEALTH PLAN, INC., Plaintiff-Appellee

v.

UNITED STATES, Defendant-Appellant

No. 2017-1994

United States Court of Appeals, Federal Circuit

June 14, 2018

Page 1312

[Copyrighted Material Omitted]

Page 1313

Appeal from the United States Court of Federal Claims in No. 1:16-cv-00649-TCW, Judge Thomas C. Wheeler.

Steven Rosenbaum, Covington & Burling LLP, Washington, DC, argued for plaintiff-appellee. Also represented by Shruti Chaganti Barker, Caroline Brown, Philip Peisch.

Alisa Beth Klein, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Chad A. Readler, Mark B. Stern.

Thomas G. Hungar, Office of General Counsel, United States House of Representatives, Washington, DC, for amicus curiae United States House of Representatives. Also represented by Kimberly Hamm, Todd B. Tatelman.

William Lewis Roberts, Faegre Baker Daniels LLP, Minneapolis, MN, for amicus curiae Association for Community Affiliated Plans. Also represented by Jonathan William Dettmann, Kelly J. Fermoyle, Nicholas James Nelson.

Steven Allen Neeley, Jr., Husch Blackwell LLP, Washington, DC, for amicus curiae National Association of Insurance Commissioners.

Stephen A. Swedlow, Quinn Emanuel Urquhart & Sullivan, LLP, Chicago, IL, for amicus curiae Health Republic Insurance Company.

Ursula Taylor, Butler Rubin Saltarelli & Boyd LLP, Chicago, IL, for amicus curiae Blue Cross Blue Shield Association. Also represented by Sandra J. Durkin.

Benjamin N. Gutman, Oregon Department of Justice, Salem, OR, for amici curiae State of Oregon, State of Alaska, State of Connecticut, State of Hawaii, State of Illinois, State of Iowa, State of Maryland, State of Massachusetts, State of Minnesota, State of New Mexico, State of North Carolina, State of Pennsylvania, State of Rhode Island, State of Vermont, State of Virginia, State of Washington, State of Wyoming, District of Columbia.

Before Prost, Chief Judge, Newman and Moore, Circuit Judges.

OPINION

Prost, Chief Judge.

Page 1314

A health insurer contends that the government failed to satisfy the full amount of its payment obligation under a program designed to alleviate the risk of offering coverage to an expanded pool of individuals. The Court of Federal Claims entered judgment for the insurer on both statutory and contract grounds. The government appeals. We reverse.

BACKGROUND

This case concerns a three-year "risk corridors" program described in the Patient Protection and Affordable Care Act,

Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified at 42 U.S.C. § § 18001 et seq.) ("ACA"), and implemented by regulations promulgated by the U.S. Department of Health and Human Services ("HHS"). The case also concerns the bills that appropriated funds to HHS and the Centers for Medicare & Medicaid Services ("CMS") within HHS for the fiscal years during which the program in question operated. We begin with the ACA.

I. The ACA

Among other reforms, the ACA established "health benefit exchanges"— virtual marketplaces in each state wherein individuals and small groups could purchase health coverage. 42 U.S.C. § 18031(b)(1). The new exchanges offered centralized opportunities for insurers to compete for new customers. The ACA required that all plans offered in the exchanges satisfy certain criteria, including providing certain "essential" benefits. See 42 U.S.C. § § 18021, 18031(c).

Because insurers lacked reliable data to estimate the cost of providing care for the expanded pool of individuals seeking coverage via the new exchanges, insurers faced significant risk if they elected to offer plans in these exchanges. The ACA established three programs designed to mitigate that risk and discourage insurers from setting higher premiums to offset that risk: reinsurance, risk adjustment, and risk corridors. 42 U.S.C. § § 18061-63. This case concerns the risk corridors program.

Section 1342 of the ACA directed the Secretary of HHS to establish a risk corridors program for calendar years 2014-2016. The full text of Section 1342 is reproduced below: (a) In general

The Secretary shall establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016 under which a qualified health plan offered in the individual or small group market shall participate in a payment adjustment system based on the ratio of the allowable costs of the plan to the plan’s aggregate premiums. Such program shall be based on the program for regional

Page 1315 participating provider organizations under part D of title XVIII of the Social Security Act [42 U.S.C. § § 1395w-101 et seq.].

(b) Payment methodology

(1) Payments out

The Secretary shall provide under the program established under subsection (a) that if—

(A) a participating plan’s allowable costs for any plan year are more than 103 percent but not more than 108 percent of the target amount, the Secretary shall pay to the plan an amount equal to 50 percent of the target amount in excess of 103 percent of the target amount; and

(B) a participating plan’s allowable costs for any plan year are more than 108 percent of the target amount, the Secretary shall pay to the plan an amount equal to the sum of 2.5 percent of the target amount plus 80 percent of allowable costs in excess of 108 percent of the target amount.

(2) Payments in

The Secretary shall provide under the program established under subsection (a) that if—

(A) a participating plan’s allowable costs for any plan year are less than 97 percent but not less than 92 percent of the target amount, the plan shall pay to the Secretary an amount equal to 50 percent of the excess of 97 percent of the target amount over the allowable costs; and

(B) a participating plan’s allowable costs for any plan year are less than 92 percent of the target amount, the plan shall pay to the Secretary an amount equal to the sum of 2.5 percent of the target amount plus 80 percent of the excess of 92 percent of the target amount over the allowable costs.

(c) Definitions

In this section: (1) Allowable costs

(A) In general

The amount of allowable costs of a plan for any year is an amount equal to the total costs (other than administrative costs) of the plan in providing benefits covered by the plan.

(B) Reduction for risk adjustment and reinsurance payments

Allowable costs shall [be] reduced by any risk adjustment and reinsurance payments received under section[s] 18061 and 18063 of this title.

(2) Target amount

The target amount of a plan for any year is an amount equal to the total premiums (including any premium subsidies under any governmental program), reduced by the administrative costs of the plan.

42 U.S.C. § 18062.

Briefly, section 1342 directed the Secretary of HHS to establish a program whereby participating plans whose costs of providing coverage exceeded the premiums received (as determined by a statutory formula) would be paid a share of their excess costs by the Secretary— "payments out." Conversely, participating plans whose premiums exceeded their costs (according to the same formula) would pay a share of their profits to the Secretary— "payments in." The risk corridors program "permit[ted] issuers to lower [premiums] by not adding a risk premium to account for perceived uncertainties in the 2014 through 2016 markets." HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed.Reg. 15,410, 15,413 (Mar. 11, 2013).

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On March 20, 2010, just three days before Congress passed the ACA, the Congressional Budget Office ("CBO") published an estimate of the ACA’s cost. See Letter from Douglas Elmendorf, Director, CBO, to Nancy Pelosi, Speaker, House of Representatives tbl. 2 (Mar. 20, 2010) ("CBO Cost Estimate"), https://www.cbo.gov/ sites/default/files/111th-congress-2009-2010/costestimate/ amendreconprop.pdf. The CBO Cost Estimate made no mention of the risk corridors program, though it scored the reinsurance and risk adjustment programs. Id. Overall, CBO predicted the ACA would reduce the federal deficit by $143 billion over the 2010-2019 period it evaluated. Id. at p.2.

Preambulatory language in the ACA referred to CBO’s overall scoring, noting that the "Act will reduce the Federal deficit between 2010 and 2019." ACA § 1563(a).

II. Implementing Regulations

In March 2012, HHS promulgated regulations establishing the risk corridors program as directed by section 1342. Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 Fed.Reg. 17,220, 17,251-52 (Mar. 23, 2012) (codified at 45 C.F.R. Pt. 153, Subpart F). Those...

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