The U.S. federal government is starting to send health insurers $12 billion in payments for Affordable Care Act (ACA) risk corridors program subsidies for coverage provided in 2014, 2015 and 2016.
The U.S. Department of Health and Human Services (HHS) had failed to make the ACA risk corridors program payments for years, saying that Congress had refused to provide funding for the program.
The U.S. Supreme Court ruled in April that the U.S. government has no right to cut off promised program payments simply because Congress refuses to provide funding. The court gave health insurers permission to seek ACA risk corridors program payments from the Judgment Fund
The Bureau of the Fiscal Service — an arm of the U.S. Treasury Department — uses the Judgment Fund to make payments to plaintiffs who win lawsuit judgments against the U.S. federal government.
The bureau’s Judgment Fund search system shows that the fund has already sent $129 million in risk corridors payments to the estate of Land of Lincoln Mutual Health Insurance Company.
Land of Lincoln was a small, nonprofit, member-owned, Illinois-based health insurer that failed in 2016, partly because it was unable to collect the ACA risk corridors program subsidy payments it was expecting to receive.
One document on the website of the Illinois Office of the Special Deputy Receiver shows that the Land of Lincoln liquidator needed an extra $69 million to meet all obligations.
The liquidator — the director of the Illinois Department of Insurance — used an open bidding process to sell some rights to the litigation proceeds to Juris Capital, a litigation finance company, in August 2019.
Under the deal between liquidator and Juris Capital, Juris Capital will get to keep $65 million of the litigation proceeds, and the estate of Land of Lincoln will get $64 million.
Another health insurer, Moda Health Plan, has received $249 million from the Judgment Fund in connection with the ACA risk corridors program.
Moda Health is still in business. AM Best, a rating agency, responded to Moda Health’s receipt of the litigation proceeds by increasing its financial strength rating to B++, or good, from B, or fair.
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Members of the Congress created the risk corridors program to persuade health insurers to try selling products through the ACA public exchange system, a collection of web-based health insurance supermarkets that came to life in 2014.
The risk corridors program was supposed to use cash from thriving exchange plan issuers to help struggling issuers for 2014 through 2016.
Republicans in Congress succeeded at passing provisions that restricted HHS to using only cash collected from thriving exchange plan issuers to make the risk corridors program payments.
Program managers at HHS collected only enough cash from thriving issuers to pay about 15% of the money owed for 2014, and none of the money owed for 2015 and 2016. Program managers ended up paying out $12 billion less than struggling exchange plan issuers were expecting to receive.
The United States now has about 15 million people with individual major medical coverage, according to Mark Farrah Associates.
The risk corridors program payments flowed out now will average about $800 per current individual major medical insured.
Mark Farrah Associates says individual and small group major issuers combined for about $4.2 billion in health insurance underwriting gain in 2019, meaning that they kept $4.2 billion more of the premiums than they paid out for claims.
The flow of risk corridors payments will be three times the size of the issuers combined 2019 underwriting gain.
