Conway v. United States, 2020-1292

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Moore, Circuit Judge.
• Citation: 997 F.3d 1198
• Parties: Michael CONWAY, in His Capacity as Liquidator of Colorado Health Insurance Cooperative, Inc., Plaintiff-Appellee v. UNITED STATES, Defendant-Appellant
• Decision Date: 17 May 2021
• Docket Number: 2020-1292

997 F.3d 1198

Michael CONWAY, in His Capacity as Liquidator of Colorado Health Insurance Cooperative, Inc., Plaintiff-Appellee
v.
UNITED STATES, Defendant-Appellant

2020-1292

United States Court of Appeals, Federal Circuit.

Decided: May 17, 2021

Clifton S. Elgarten, Crowell & Moring LLP, Washington, DC, argued for plaintiff-appellee. Also represented by Charles Baek, Skye Mathieson, Stephen John McBrady, Monica Rose Sterling, Daniel William Wolff.

Alisa Beth Klein, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Jeffrey B. Clark, Jeffrey Eric Sandberg.

Before Moore, Bryson, and Chen, Circuit Judges.

Moore, Circuit Judge.

The government appeals a final judgment of the United States Court of Federal Claims. J.A. 21; see also Conway v. United States , 145 Fed. Cl. 514 (2019) (" Claims Court Op. "). In 2016, a Colorado court ordered Colorado Health Insurance Cooperative, Inc., into liquidation. At the time, the government owed Colorado Health $24,489,799 for reinsurance debts under the Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010), and related regulations. Colorado Health, on the other hand, owed the Department of Health and Human Services approximately $42,000,000 for risk adjustment debts, another program under the ACA and related regulations. The government attempted to leapfrog other insolvency creditors through offset, rather than paying its debt in full and making a claim against Colorado Health's estate as an insolvency creditor. The Claims Court, however, ordered the government to pay. For the following reasons, we affirm.

BACKGROUND

In the ACA, Congress adopted "a series of interlocking reforms designed to expand coverage in the individual health insurance

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market." King v. Burwell , 576 U.S. 473, 478–79, 135 S.Ct. 2480, 192 L.Ed.2d 483 (2015). As part of the ACA, Congress enacted three risk-mitigation programs, often called the "3Rs." 42 U.S.C. §§ 18061 (reinsurance), 18062 (risk corridors), 18063 (risk adjustment). In general, the 3Rs were aimed at stabilizing health insurance premiums. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15,410, 15,411 (Mar. 11, 2013) (to be codified at 45 C.F.R. pts. 153, 155–58) ("2014 Final Rule ").

Here, the risk adjustment and reinsurance programs are particularly relevant. The risk adjustment program, which is permanent, charges insurers of individuals who had below-average actuarial risk and pays insurers of individuals who had above-average actuarial risk. 42 U.S.C. § 18063(a). It "is intended to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, and reduce the incentives for issuers to avoid higher-risk enrollees." 2014 Final Rule , 78 Fed. Reg. at 15,411. The reinsurance program, which only lasted three years, collected yearly payments from all insurers and made payments to insurers of particularly costly individuals that year. 42 U.S.C. § 18061. It "[wa]s designed to protect against issuers’ potential perceived need to raise premiums due to the implementation of the 2014 market reform rules, specifically, guaranteed availability." 2014 Final Rule , 78 Fed. Reg. at 15,467. Both programs operate on a state-by-state basis, and states are permitted to craft their own programs, provided the plans comply with federal standards. 42 U.S.C. § 18041(a) – (b). If states fail to act, however, the Department of Health and Human Services (HHS) must step in. Id. § 18041(c). In all but two states, HHS operates both programs.

To implement these programs, HHS has promulgated extensive regulations. See, e.g. , 2014 Final Rule , 78 Fed. Reg. at 15,411 –540. One such regulation, designed to ease HHS’ administration of the 3Rs, allows for netting of payments:

HHS may net payments owed to issuers and their affiliates operating under the same tax identification number against amounts due to the Federal or State governments from the issuers and their affiliates under the same taxpayer identification number for ... risk adjustment [and] reinsurance ... payments and charges.

45 C.F.R. § 156.1215(b) (the "Netting Regulation") (applicable after 2014). In promulgating the Netting Regulation, HHS explained that it was designed "to streamline payment and charge flows from all of these programs" and that HHS believed "this process w[ould] enable [it] to operate a monthly payment cycle that will be efficient for both issuers and HHS." Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13,744, 13,817 (Mar. 11, 2014) ("2015 Final Rule ").

The ACA also created a Consumer Operated and Oriented Plan (CO-OP) program "to foster the creation of qualified nonprofit health insurance issuers to offer qualified health plans in the individual and small group markets in the States in which the issuers are licensed to offer such plans." 42 U.S.C. § 18042(a)(2). That program provided loans and grants to persons "applying to become qualified nonprofit health insurance issuers." Id. § 18042(b)(1). In setting repayment terms for those loans, HHS is required to comply with state solvency law. Id. § 18042(b)(3).

Colorado Health, a CO-OP program insurer, participated in the Colorado reinsurance and risk-adjustment programs for

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benefit year 2015. Because Colorado had declined to administer those programs, HHS operated both. For that year, HHS owed Colorado Health $38,664,334.67 under the reinsurance program, and Colorado Health owed HHS approximately $42,000,000 under the risk-adjustment program. In early 2016, before the final obligations for benefit year 2015 were tabulated, HHS made an early reinsurance payment. Accounting for that payment, HHS still owes Colorado Health $24,489,799. No other payments have been made.

Soon after HHS’ early payment, a Colorado court ordered Colorado Health into liquidation. Liquidation is a bankruptcy-like proceeding during which a liquidator, here Michael Conway, collects and distributes an insurer's assets. In Colorado, such proceedings are governed by the Insurers’ Rehabilitation and Liquidation Act. Colo. Rev. Stat. §§ 10-3-501 to 10-3-559 ; see also 1992 Colo. Legis. Serv. S.B. 92–12 (repealing and recodifying that Act in its entirety). The Act sets the priority for asset distribution. See Colo. Rev. Stat. § 10-3-541. For example, it prioritizes administrative expenses and policyholders over the federal government:

Class 1 . The costs and expenses of administration during rehabilitation and liquidation, including but not limited to the following: ....

Class 2 . All claims under policies [with various exceptions] ....

Class 3 . Claims of the federal government, except those described in [Class 2].

Id. § 10-3-541(a)–(c). It also creates exceptions to those priority rules. One such exception, added during the 1992 recodification, is offset:

Notwithstanding any other provision of this title, mutual debts or mutual credits, whether arising out of one or more contracts between the insurer and another person in connection with any action or proceeding under this part 5, shall be set off, and the balance only shall be allowed or paid, except as provided in subsections (2) and (4) of this section and section 10-3-532.

Id. § 10-3-529(1) (as amended in 2001). This set off statute overruled, in part, Bluewater Insurance Ltd. by Tennessee Insurance Co. v. Balzano by Colaiannia , 823 P.2d 1365 (Colo. 1992) (holding no right to offset existed).

In response to Colorado Health's insolvency, HHS expressed an intent to offset Colorado Health's risk adjustment debt against HHS’ reinsurance debt. After various proceedings in state court, Conway sued HHS in the

Claims Court, seeking direct payment of HHS’ reinsurance debt. Before the government answered, Conway moved for summary judgment. The government opposed and filed a countermotion to dismiss.

The Claims Court granted-in-part and denied-in-part both motions. See Claims Court Op. , 145 Fed. Cl. at 518. As is relevant here, the Claims Court held "neither the ACA nor another statute require or authorize HHS to issue a rule offsetting among different ACA programs payments HHS owes to an insurer in liquidation proceedings and contributions HHS is owed." Id. at 522, 523–24. It also held that federal common law controlled the government's right to offset, rather than state law. Id. at 524. But the Claims Court recognized that existing federal law does not address offset during state-law insolvency proceedings. Id. And the Claims Court declined to create federal common law that would conflict with state law. Id. at 526–27. Interpreting Colorado's offset provision, the Claims Court held the government was not entitled to offset.

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Id. at 524–26. Thus, it entered judgment on the merits in Conway's favor. Id. at 530. The parties stipulated to the amount of damages, and the Claims Court entered final judgment. J.A. 21. The government appeals. We have jurisdiction under 28 U.S.C. § 1295(a)(3).

DISCUSSION

The...