Highmark Sues U.S. Over Affordable Care Act

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“All we’re asking is for the federal government to do what they promised” – David Holmberg.

Insurer says it didn’t get nearly $223 million owed under ‘risk corridors’ program

By ANNA WILDE MATHEWS

Updated May 17, 2016 7:03 p.m. ET

Major insurer Highmark Inc. is suing the federal government, arguing it is owed money under the Affordable Care Act, a move that opens yet another front in the continuing legal battles over the 2010 health law.

Highmark, the insurance arm of Pittsburgh-based nonprofit Highmark Health, said in the suit that the U.S. failed to live up to obligations to pay the insurer nearly $223 million owed under an ACA program known as “risk corridors,” which aimed to limit the financial risks borne by insurers entering the new health-law markets. The suit claims “violations of the mandatory risk-corridor payment obligations prescribed” in the health law.

The suit is likely to draw close attention because it comes from a company that continues to be a major player in the ACA health-insurance marketplaces in three states. Many other insurers also suffered major shortfalls in risk-corridor payments.

“Publicly traded companies may come under pressure from shareholders to file their own suits,” said Ana Gupte, an analyst with Leerink Partners LLC.

Highmark Health Chief Executive David Holmberg said the company had a fiduciary responsibility to its policyholders to file the suit. “All we’re asking is for the federal government to do what they promised,” he said.

Highmark Health had a loss of around $85 million last year, on revenue of about $17.7 billion, with the negative result due largely to losses on its ACA-plan business.

The federal Department of Health and Human Services announced last fall that insurers initially would receive only 12.6% of the money they claimed under the risk-corridor program for 2014, its first year of operation. Highmark is seeking the full amount it says is due to it for that year.

A Health and Human Services spokesman declined to comment on the suit.

The Highmark suit was filed Tuesday in the U.S. Court of Federal Claims, in the District of Columbia. At least one other insurer suit focused on risk-corridor payments has been filed in the same court, by Health Republic Insurance Co. in February, and that suit is seeking class-action status. The court has yet to rule on the substance of the February suit, according to Stephen Swedlow, an attorney representing Health Republic.

The risk-corridor suits are the latest sign that six years after its passage, the ACA continues to generate intense legal controversy. Just in the past week, a federal court ruled that the Obama administration overstepped its authority in making certain payments under the law without explicit appropriations from Congress, and the Supreme Court sent back to lower courts a case regarding religious employers’ role in covering contraception.

In its complaint, Highmark argues that the U.S. government is obligated to pay the full amount owed under the risk-corridor program, on an annual basis, under the language of the ACA and because of contracts signed with insurers offering plans through the law’s marketplaces.

As damages, Highmark is seeking the amount it says it is owed for 2014 under the risk-corridor program, which is approximately $223 million, minus the amount it has been paid so far, which is currently around $27 million. Highmark also is seeking interest and legal expenses.

At the heart of the suit are the details of the risk-corridor program, which was supposed to help limit insurers’ losses, using payments collected from other insurers that did relatively well on the new ACA business.

Highmark says federal officials initially said these payments would be made in full even if the amount owed was greater than the amount collected from other insurers.

But later, Highmark’s suit says, federal officials said the program would be “budget neutral,” meaning that it would pay out only as much as it collected.

Language in a 2014 congressional spending bill reinforced this stance.

In the end, insurers requested approximately $2.87 billion in risk-corridor payments based on their 2014 results.

But only $362 million came in from other insurers. The Department of Health and Human Services has said that as more money comes into the program in future years, it will be paid out to backfill the shortfall for the 2014 allotment.

Highmark’s suit says agency officials have reiterated that the federal government is obligated to make full risk-corridor payments.

But that acknowledgment “is an insufficient substitute for full and timely payment of the amounts owed,” the complaint says.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

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