Notice & Comment

Just how many billions of dollars are at stake in the litigation over cost-sharing payments?

Earlier this week, the Court of Federal Claims certified a class action brought by insurers to recover the cost-sharing payments that President Trump unceremoniously terminated. At first blush, the court’s opinion looks unremarkable. Because insurers share a common legal claim—you promised to pay me, and you broke that promise—it makes sense to certify a single class instead of dealing with a bunch of duplicative lawsuits.

But the rationale the court employed to reach that result is potentially explosive. Should it stand up on appeal, it suggests that the federal government will be liable for tens of billions of dollars in damages, with the precise amount growing every day. It’s worth explaining why.

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If insurers win these lawsuits—and they should—how much money will they get? Can they recover all of the cost-sharing payments that the ACA promises to them? Or have insurers mitigated their losses by hiking the premiums for their silver plans and shifting unsubsidized enrollees to gold or bronze plans—a practice known as “silver loading”?

Back in December, I explained the role that mitigation would play in the cost-sharing litigation:

[Mitigation is] a principle that might be familiar to you if you’ve ever thought about breaking a lease on an apartment. Although your landlord can sue you for any rent owed for the months remaining on the lease, he also has a duty to find a new tenant. If he does, you only have to compensate your landlord for the time that the apartment was empty. The landlord has mitigated his losses.

The same principle should kick in here. Silver loading has allowed insurers to sidestep most of the harm associated with the loss of the cost-sharing subsidies. Insurers haven’t hemorrhaged customers; instead, they’ve adapted. Indeed, some insurers are better off now than they were before: as premium subsidies increase, they’ll get more customers signing up for their gold and bronze plans.

I also explained, however, that it was the government’s responsibility to prove that insurers had in fact mitigated their damages, and that “the factual inquiries will be demanding. … It’s hard to know what the world would have looked like if the cost-sharing payments had been made, so it’s hard to know whether any given insurer is better off or worse off now that they’ve been terminated.”

In fighting over class certification, the government latched onto this point—the complexity of the factual inquiry over damages—to argue that class certification was inappropriate. Each individual insurer’s damages will be different, the government argued, so it’d be madness to try to resolve their claims in a single suit.

The judge didn’t buy it:

[The government] does not identify any statutory provision permitting [it] to use premium tax credit payments to offset its cost-sharing reduction payment obligations (even if insurers intentionally increased premiums to obtain larger premium tax credit payments to make up for lost cost-sharing reduction payments). In the absence of such an offset, the calculation of each potential class member’s unpaid cost-sharing reduction payments appears to be a rather straightforward process based on data provided to the government by the insurers—the identity of each qualified health plan in which individuals eligible for cost-sharing reductions are enrolled, and the amount of each individual’s cost-sharing reduction. Such a calculation lacks the complexity that would overwhelm the issues common to the proposed class.

In other words, mitigation is irrelevant to the ultimate damages calculation. Insurers are instead entitled to every dollar that they’re owed under the ACA’s statutory formula.

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The court’s refusal to consider mitigation will make no difference for the $2 billion or so that’s due to insurers for the cost-sharing payments they lost in 2017. But it could matter enormously for the many billions in cost-sharing payments that insurers are entitled to in 2018. The same goes for 2019, 2020, 2021 … you get the point. Every day that the ACA’s cost-sharing provisions stay on the books is another day of additional liability. As Dave Anderson noted this morning, “[t]he net present value under dispute for the next decade could easily reach $100 billion dollars.”

Congress could stop the bleeding by wiping out the statutory obligation to make cost-sharing payments. Indeed, the judge’s decision will put pressure on Congress to do just that. But Democrats and Republicans are at loggerheads over what to do with the cost-sharing payments, and I don’t see matters improving after the midterms. The bleeding will likely continue.

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What happens next? If it gets permission from the Federal Circuit, the government can immediately appeal the decision to certify the class. Given the stakes, I suspect both that the government will seek permission and that the Federal Circuit will grant it. On appeal, the government will raise the argument about mitigation; if it loses there, it could take the question to the Supreme Court.

I don’t know if the court’s rationale will be upheld on appeal. I’ll admit, however, to some skepticism. The judge found it significant that no statute allows the government to offset its cost-sharing liabilities. Why should that matter, though? Damages calculations in the Court of Federal Claims are governed by federal common law, and federal common law requires an inquiry into mitigation, even in cases against the United States. Nothing in the ACA purports to disturb that general rule.

Now, the decision to certify a class might still be defensible. The judge offered an alternative basis for judgment: “it is well settled that the need for individualized damages calculations does not preclude the certification of a class.” Although that statement strikes me as too categorical to be universally true—in some cases, won’t damages questions be so tricky that class certification would be inefficient?—it’s at least a closer question.

On the ultimate question of damages, however, this case is by no means over. I still think that insurers shouldn’t be too bullish about recovering cost-sharing money for 2018 and beyond. But they’re one big step closer to that goal.


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