Health Republic Ins. Co. v. United States
| Docket Number | 16-cv-259C |
| Decision Date | 19 August 2022 |
| Parties | HEALTH REPUBLIC INSURANCE COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Following the Supreme Court's decision in Maine Community Health Options v. United States, 140 S.Ct. 1308 (2020) which held that Defendant was liable to Qualified Health Plan issuers ("QHP") for unpaid risk-corridors payments under Section 1342 of the Patient Protection and Affordable Care Act ("ACA"), Defendant amended its Answer to assert a counterclaim against members of the Dispute Subclass. This subclass originally included four QHPs who disputed either the amount of the payments owed to them Defendant's right to offset debts against a judgment in their favor, and/or the extent of any such offset. Of the original four members of the Dispute Subclass, only Colorado Health Insurance Cooperative, Inc. ("Colorado HealthOp") remains.[1] Defendant's counterclaim seeks payments owed by Colorado HealthOp to the Department of Health and Human Services ("HHS"), Centers for Medicare & Medicaid Services ("CMS") under a variety of ACA programs, as well as unpaid interest on those payments.
Colorado HealthOp now moves to dismiss Defendant's counterclaim for lack of subject-matter jurisdiction, arguing that the Court's authority to entertain Defendant's counterclaim is reverse preempted by the McCarran-Ferguson Act ("MFA"), 15 U.S.C. § 1011 et seq., and, in the alternative, it fails to state claims for offset and interest upon which relief may be granted. For the reasons below, the Court concludes that it has jurisdiction over Defendant's counterclaim. However, to the extent the counterclaim seeks an offset against the amounts owed by Colorado HealthOp and interest on those amounts, it lacks a lawful basis. Accordingly, Colorado HealthOp's motion is DENIED IN PART and GRANTED IN PART.
The ACA established the Consumer Operated and Oriented Plan program ("CO-OP program") for the purpose of helping create nonprofit health insurance issuers known as CO-OPs. See Def.'s Am. Answer & Countercl. ¶ 8, ECF No. 101 (citing 42 U.S.C. § 18042(a)(1)-(2)). Under this program, CO-OPs could obtain start-up loans to cover their start-up costs and other loans to help CO-OPs meet the solvency and capital reserve requirements in their states of licensure. Id. (citing 42 U.S.C. § 18042(b)(1)). CMS is authorized by regulation to collect any debt owing by QHPs that failed to make loan payments when due, and the loan agreements preserved HHS's right to collect the debt through offset. Id. ¶ 9 (citing 45 C.F.R. § 156.520(d) and Loan Agreement § 19.12). To help mitigate pricing risks and incentives for adverse selection, the ACA established three premium-stabilization programs informally known as the "3Rs"-the reinsurance, risk adjustment, and risk corridors programs-which are funded by amounts paid into the programs by QHPs. Id. ¶ 10 (citing 42 U.S.C. §§ 18061-63); see id. ¶ 11. Payments of premium tax credits, cost-sharing reductions ("CSR"), and CSR reconciliation payments constituted a significant source of the financial transfers between QHPs and HHS under the ACA. Id. ¶ 16. In connection with the risk adjustment program, the ACA and implementing regulations also required payment of user fees. Id. ¶ 17 (citing 42 U.S.C. §§ 18031(d)(5), 18041(c)(1), 18063; 45 C.F.R. § 153.610(f)). In short, the ACA created a framework in which Defendant and QHPs were mutually obligated to each other. As part of the payments and collection process, the implementing regulations permitted HHS to net payments owed to QHPs against the amounts due from them. Id. ¶ 18 (citing 45 C.F.R. § 156.1215).
In 2012, Colorado HealthOp received start-up and solvency loans under the CO-OP program. Id. ¶ 20. It also sold policies on Colorado's ACA state exchange during the 2014 and 2015 benefit years and participated in the premium-stabilization programs administered by HHS. Id. ¶¶ 23, 50. According to Colorado HealthOp, because of Defendant's failure to remit risk-corridors payments to QHPs, Colorado HealthOp lost over $111 million from its participation in the risk corridors program. Pl.'s. Mot. to Dismiss Def.'s Countercl. at 8-9, ECF No. 103. Insolvency followed, and Colorado HealthOp entered liquidation in January 2016. See ECF No. 101 ¶¶ 24-25. Michael Conway was named as Colorado HealthOp's liquidator, who is charged with collecting and distributing its assets. See ECF No. 103 at 10. Defendant has filed a proof of claim in the liquidation proceeding for the same payments of Colorado HealthOp owing to the United States that are the subject of its counterclaim. See id. at 9; see Hr'g Tr. at 54:25-55:3, ECF No. 159.
On October 19, 2018, during the pendency of this risk-corridors litigation, Mr. Conway brought a separate suit in the Court of Federal Claims seeking reinsurance payments owed to Colorado HealthOp under the ACA. See Conway v. United States, 145 Fed.Cl. 514 (2019). In that case, HHS intended to administratively offset Colorado HealthOp's risk adjustment payments against HHS's reinsurance payments. See id. at 525. According to Conway, the offset violated Colorado's insurer insolvency law, which prevents parties owing money to an insolvent insurer from offsetting non-contractual debts of the insurer against the funds owed to it. See id. Interpreting Colorado's insurer insolvency law, the trial court in Conway held that HHS was not entitled to offset. See id. at 529. The Government appealed.
On May 17, 2021, following the conclusion of briefing on the instant motion, the United States Court of Appeals for the Federal Circuit affirmed the trial court, holding that HHS could not leapfrog other creditors in the Colorado insolvency proceeding by offsetting the amounts that Colorado HealthOp owed in risk adjustment payments against the amounts HHS owed for reinsurance payments. See Conway v. United States, 997 F.3d 1198, 1201 (Fed. Cir. 2021). The Federal Circuit determined that Colorado law limited permissible offsets in insurer insolvency proceedings to only those arising from contractual obligations and that neither the ACA nor its implementing regulations demonstrated Congress's intent to preempt state creditor priority laws. Id. at 1205-06, 1211, 1214. The Court also held that federal common law and other federal statutes likewise did not override Colorado's liquidation priority scheme. Id. at 1214-16.
On August 3, 2020, shortly after the Court certified the Dispute Subclass, Defendant moved to amend its Answer to assert a counterclaim. See Def.'s Mot. for Leave to Am. Answer, ECF No. 85. In opposition, Colorado HealthOp argued that amendment would be futile for many of the same reasons forming the basis of the instant motion, including that this Court's authority to hear and determine Defendant's claim must yield to the Colorado liquidation court pursuant to the McCarran-Ferguson Act. See Pl.'s Br. in Opp'n to Def.'s Mot. for Leave to Am. Answer at 18- 24, ECF No. 86. On September 30, 2020, the Court granted Defendant's motion. See Health Republic Ins. Co. v. United States, 150 Fed.Cl. 233 (2020) (Sweeney, J.). After recognizing it had jurisdiction under 28 U.S.C. §§ 1503 and 2508 to hear and determine Defendant's assertion of a setoff, the Court rejected the contention that Defendant's counterclaim was barred by the McCarran-Ferguson Act. See id. at 237, 241-42. The Court found the premise of that argument erroneous because the United States' right to assert a setoff derives from common law and not an Act of Congress. See id. at 241. As the Court explained, the jurisdictional statutes Defendant invokes, "and upon which the subclass's contention hinges[,] merely provide that any claim for setoff raised by defendant against a plaintiff bringing suit in this court can and must be heard and decided by this court." Id. The Court also noted the then-pending appeal in Conway, addressing a "similar issue" about whether "the pertinent state priority statutes preempt defendant's proposed setoffs in this court . . . ." Id. at 242 n.10.
On October 30, 2020, Defendant filed an Amended Answer stating a counterclaim against Colorado HealthOp for breach of statutory and regulatory duties arising from its failure to pay CMS risk adjustment charges, reinsurance contributions, CSR reconciliation charges, and risk adjustment user fees. See ECF No. 101 ¶¶ 26-33, 52-55. Defendant alleges these outstanding payments total approximately $20 million. See id. Defendant also alleges that it is entitled to continually accruing interest on these payments totaling, as of July 15, 2020, approximately $7.3 million. Id. ¶¶ 34, 56. The Amended Answer and Counterclaim concedes Colorado HealthOp's entitlement to the outstanding risk-corridors payments, which according to Colorado HealthOp total over $111 million. See id. at 1; ECF No. 103 at 9. Defendant avers that "the damages due to [Colorado HealthOp] are subject to offset as set forth in the United States' counterclaim." ECF No. 101 at 1.
Colorado HealthOp moved to dismiss Defendant's counterclaim on November 20, 2020. It argues that the McCarran-Ferguson Act reverse preempts the Court's jurisdiction under 28 U.S.C §§ 1503 and 2508. See ECF No. 103 at 13-17. In the alternative, it argues that Defendant's offset claim fails as a matter of law because it is prohibited by Colorado's insurer insolvency law and not permitted by federal common law. See id. at 20-29. It also contends that Defendant's interest claim fails because a claim for interest is not available when the Government is the net debtor and, in any event, any accrued interest became fixed upon the issuance of the liquidation order....
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