Conway v. United States

• Decision Date: 03 October 2019
• Docket Number: No. 18-1623,18-1623
• Parties: MICHAEL CONWAY, in his capacity as Liquidator of Colorado Health Insurance Cooperative, Inc. Plaintiff, v. THE UNITED STATES, Defendant.
• Court: Court of Federal Claims

MICHAEL CONWAY, in his capacity asLiquidator of Colorado Health Insurance Cooperative, Inc. Plaintiff, v. THE UNITED STATES, Defendant.

No. 18-1623

United States Court of Federal Claims

October 3, 2019

Keywords: Affordable Care Act; Reinsurance Program; Right of Offset; 42 U.S.C. § 18061; 45 C.F.R. § 156.1215.

Stephen McBrady, Crowell & Moring LLP, Washington, D.C., for plaintiff.

Marc S. Sacks, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for defendant.

MEMORANDUM OPINION AND ORDER

HERTLING, Judge

Plaintiff Michael Conway, in his capacity as Liquidator of Colorado Health Insurance Cooperative, Inc. ("the Cooperative"), sued the United States for payments that the U.S. Department of Health and Human Services' Center for Medicare and Medicaid Services ("HHS") allegedly owes the Cooperative under the Patient Protection and Affordable Care Act ("ACA"). HHS reduced or "offset" the amount of its payments to the insolvent Cooperative on account of debts allegedly owed to HHS by the Cooperative. The Liquidator argues that, under the McCarran-Ferguson Act, Colorado law governs the priority of payment of debts owed by an insurer in liquidation proceedings. Therefore, the Liquidator argues, HHS must, under Colorado insurance liquidation law, pay the amount it offset. The Liquidator requests the $24,489,799 that HHS allegedly offset, pre- and post-judgment interest, costs, attorneys' fees, and any other relief the Court deems proper and just. For the following reasons, the plaintiff's Motion for Summary Judgment is granted in part and denied in part, and HHS's Cross-Motion to Dismiss is granted in part and denied in part.

I. BACKGROUND

A. ACA Programs and the Netting Rule

In the ACA,¹ Congress created the Consumer Operated and Oriented Plan ("CO-OP") program, to ensure that states' health-benefit marketplaces were stocked with qualified insurance plans for healthcare consumers to buy. 42 U.S.C. § 18042. The CO-OP program provided loans and grants to "qualified nonprofit health insurance issuers to offer qualified health plans in the individual and small group markets." Id. It is undisputed that the Cooperative was a CO-OP program insurer.²

To help insurers offset the risks of providing broader coverage under the ACA's new requirements, the ACA required each state to establish certain discreet payment programs. See, e.g., 42 U.S.C. § 18061(a) ("Each State shall . . . establish (or enter into a contract with) 1 or more applicable reinsurance entities to carry out the reinsurance program . . . ."); § 18063(a) ("[E]ach State shall assess a charge on health plans and health insurance issuers . . . . [E]ach State shall provide a payment to health plans and health insurance issuers . . . ."). For the years relevant to this case, these programs included the reinsurance and risk-adjustment programs.³

Although the ACA allowed each state to operate its own reinsurance and risk-adjustment programs, all but two states have opted out, so HHS administers the programs for the other states. See 42 U.S.C. § 18041 (providing that if a state opts out or fails to establish an exchange, a reinsurance program, or a risk-adjustment program, HHS "shall establish and operate such exchange within the State and [HHS] shall take such actions as are necessary to implement" the reinsurance and risk-adjustment programs). HHS operated the reinsurance and risk-adjustment programs for Colorado at the times relevant to this case.

The reinsurance program required that insurers make payments in 2014, 2015, and 2016 to one or more "reinsurance entities." 42 U.S.C. § 18061. Those entities were then required to distribute the funds to "health insurance issuers . . . that cover[ed] high risk individuals." Id.

The risk-adjustment program, also operated by HHS, requires that insurers whose plans bear low actuarial risk pay the state (or the federal government) a specified amount. 42 U.S.C. § 18063. That governmental entity then redistributes those payments to insurers whose plans bear high actuarial risk. Id.

On March 11, 2014, HHS promulgated a final rule ("the Netting Rule") explaining the method by which it would aggregate and offset monies owed by or to different insurers under these and other ACA payment programs. See 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) (codified at 45 C.F.R. § 156.1215); Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2017, 81 Fed. Reg. 12,204, 12,317-18 (Mar. 8, 2016) (technical amendments to March 2014 rule). The Netting Rule provides:

(a) Netting of payments and charges for 2014. In 2014, as part of its monthly payment and collections process, HHS will net payments owed to [qualified health plan ("QHP")] issuers and their affiliates under the same taxpayer identification number against amounts due to the Federal government from the QHP issuers and their affiliates under the same taxpayer identification number for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and payment of Federally-facilitated Exchange user fees.

(b) Netting of payments and charges for later years. As part of its payment and collections process, 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 advance payments of the premium tax credit, advance payments of and reconciliation of cost-sharing reductions, payment of Federally-facilitated Exchange user fees, payment of any fees for State-based Exchanges utilizing the Federal platform, and risk adjustment, reinsurance, and risk corridors payments and charges.

(c) Determination of debt. Any amount owed to the Federal government by an issuer and its affiliates for advance payments of the premium tax credit, advance payments of and reconciliation of cost-sharing reductions, Federally-facilitated Exchange user fees, including any fees for State-based Exchanges utilizing the Federal platform, risk adjustment, reinsurance, and risk corridors, after HHS nets amounts owed by the Federal government under these programs, is a determination of a debt.

45 C.F.R. § 156.1215.

B. Factual Background

In 2012, HHS approved the Cooperative's application to operate as a CO-OP program insurer and executed a loan agreement with the Cooperative.⁴

The Cooperative soon ran into financial difficulties. After an unsuccessful state-ordered supervision and rehabilitation process, in January 2016 a Colorado state court placed the Cooperative in liquidation. Liquidation is a bankruptcy-like insolvency proceeding established by state law in which an appointed "liquidator" collects any money an insolvent insurer is owed and distributes the insurer's assets to its creditors according to the priority scheme applied by the liquidation court.

In March 2016, HHS paid the Cooperative an early reinsurance payment of $14,154,424 for the previous year. Later that month, the Liquidator provided HHS a notice for creditors to submit their claims in the Cooperative's liquidation proceeding. The notice gave HHS the remainder of the calendar year to respond.

In June 2016, HHS published the amounts it owed insurers for the prior benefit year. According to HHS, it owed the Cooperative $38,644,223.02 (later amended to $38,664,334.67). To date, HHS has only paid the Cooperative $14,174,535.

According to the Liquidator, in August 2016, HHS notified him that HHS would offset $20,255,084 of the amount the agency owed the Cooperative under the reinsurance program against $21,775,432 that the Cooperative owed HHS under the risk-adjustment program. According to HHS, however, the agency executed a series of offsets between February 2017 and May 2018 to reconcile the Cooperative's various ACA program accounts.

In late December 2016, HHS responded to the Liquidator's notice. An April 2017 letter from the Liquidator requested that HHS provide additional information by June 1, 2017. Weeks after that response deadline, HHS sought an extension, and the Liquidator extended the response deadline to August 14. HHS did not respond by the August deadline.

On August 30, 2017, the Liquidator sent HHS a claims determination letter, disallowing the submitted claims and requesting the "return of all unauthorized offsets." HHS did not object to that claim determination within the 60-day limit under Colorado law. See Colo. Rev. Stat. § 10-3-538(1). In December 2017, on the Liquidator's motion, a Colorado court affirmed the Liquidator's claim determination.

C. Procedural Background

On October 19, 2018, the Liquidator filed a complaint in this Court, asserting two claims for relief. Count I of the complaint alleges that HHS has failed to make obligatory payments under the reinsurance program. Count II of the complaint alleges that HHS's offset of payments it owes to the Cooperative violates Colorado law and is therefore invalid. The Liquidator later filed a Motion for Summary Judgment and HHS moved to dismiss. The motions are fully briefed, and the Court heard oral argument on September 9, 2019.

II. STANDARD OF REVIEW

Rule 12(b)(6) of the Rules of the Court of Federal Claims ("RCFC") authorizes a party to file a motion to dismiss for "failure to state a claim upon which relief can be granted." Such a motion "'is appropriate when the facts asserted by the claimant do not entitle him to a legal remedy.'" Welty v. United States, 926 F.3d 1319, 1323 (Fed. Cir. 2019) (quoting Lindsay v. United States, 295 F.3d 1252, 1257 (Fed. Cir. 2002)).

RCFC 56 authorizes a party to file a motion for summary judgment. Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."...