Notice & Comment

Settling the risk corridor lawsuits will probably save money.

Last week, the Washington Post reported that settlement negotiations with insurers over risk corridor payments are well underway. “One health plan executive, whose attorney has spoken with Justice officials, said the department is trying to reach an agreement with suing insurers in the next two weeks on what percentage of the remaining $2.5 billion would be paid out. At that point, the same offer would be made to every other insurer owed money.”

On Friday, however, the Justice Department filed motions to dismiss in two of the risk corridor lawsuits. In so doing, it made a full-throated argument that the ACA created no entitlement to risk corridor money, that later appropriations riders have circumscribed that entitlement anyhow, and that HHS did not and could not have entered into binding risk corridor contracts with insurers.

In other words, the Justice Department is punching insurers even as it’s trying to cut a deal with them. What gives? For those who—like the Wall Street Journal—think that the Obama administration “is crafting an illegal bailout to prop up the President’s health-care law,” the behavior makes no sense. If health plans need a bailout so badly, wouldn’t the administration throw in the towel and pay up?

Here’s what’s going on: the administration is trying to save taxpayer dollars. You’d be forgiven for missing this if you read the suggestive coverage in the Post about how the administration wants to “draw from an obscure Treasury Department fund” in order to “get around a recent congressional ban.” That’s dark, isn’t it?

The reality is more prosaic. As I’ve said before and will doubtless say again, the administration is playing a losing hand in these risk corridor cases. The insurers aren’t certain to win: the Justice Department makes some plausible arguments in its motion to dismiss. And Congress could always circumscribe the Judgment Fund to preclude payment.

But the insurers are probably going to win—and win big. The Justice Department wants to cut a deal before that happens. Because litigation is long and uncertain, insurers might be willing to settle at a discount. The motions to dismiss increase the pressure on insurers to do so. And settling at a discount would likely save taxpayer money in the long run.

So don’t buy the hype. The risk corridor lawsuits may have gotten wrapped up in the bruising politics surrounding the ACA, but they’re still just lawsuits. And there’s nothing unusual or nefarious about settling lawsuits. It happens all the time.


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