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Highmark sues federal government over Obamacare losses

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Tribune-Review
The Highmark sign sits atop Fifth Avenue Place in downtown Pittsburgh.

Highmark Inc. filed a lawsuit against the federal government Tuesday seeking $223 million in payments related to the insurer’s losses in the health insurance marketplace formed by the federal Affordable Care Act.

The 2010 law included a “risk corridor” provision in which the federal government promised to cover a portion of losses insurers sustained in the first three years on the new market, which came with an unknown set of risks from people who had not had insurance coverage before.

Highmark lost more than $260 million in the new market in 2014 because of sicker-than-expected enrollees and calculates it is owed $223 million for that year, said Karen Hanlon, chief financial officer of Highmark Health, the insurer’s parent company.

Highmark’s losses reached $773 million by the end of 2015, Hanlon said.

“We’ve lived up to our end of the contractual agreement we signed with the federal government, but they’ve not lived up to their end of the bargain on that particular provision because we have not fully collected on those funds,” Hanlon said.

The Centers for Medicare & Medicaid Services, which oversees the health law, has paid Highmark about $27 million, according to the insurer.

Other major national insurers have lost money in the ACA marketplace, and at least two other lawsuits have been filed over the risk corridor payments.

Iowa Insurance Commissioner Nick Gerhart filed a lawsuit on behalf of failed insurer CoOpportunity Health Inc. on May 3, and Oregon-based Health Republic Insurance Company filed a class-action lawsuit in February.

“On the merits, I think the health plans have a strong case,” said Nicholas Bagley, a professor of law at University of Michigan Law School who follows the federal health law. “The federal government obliged itself to make these risk corridor payments, and the federal government recognizes that it’s obliged to make the payments.”

The risk corridor program is one of three mechanisms Congress included in the health law to limit insurers’ risks, helping persuade the companies to support the legislation, according to Highmark’s lawsuit, which was filed in the U.S. Court of Federal Claims.

The program was modeled under a risk corridor program set up by the Bush administration in 2006 to encourage insurers to provide coverage for Medicare’s drug program, known as Part D.

If an insurer’s premiums are too little to cover its subscribers’ medical bills, the government would cover part of the company’s losses. If the premiums exceeded medical bills, the company would pay the government part of the profit. The government would use the payments from some companies to offset the losses of other companies.

National insurers in 2014 made too little to cover losses in the program, according to a guidance document CMS issued to insurers in November 2015. CMS said in the document that it was owed $362 million in risk corridor payments for 2014, but that insurers had submitted for $2.87 billion in payments.

The agency paid about 12.6 percent of what it calculated it owed for the year, according to the guidance.

In 2014, Congress passed an appropriations bill barring CMS from transferring money from other accounts to cover the insurer’s losses, Highmark’s lawsuit states. Highmark maintains that its contract predates the bill.

“We’re maintaining that contractually they owe us these funds,” Hanlon said.

The suit seeks payment for 2014 along with assurances that Highmark will receive payments according to the law for 2015 and 2016, when the risk corridor program ends.

Highmark in April reported a strong financial performance despite the ACA losses, citing $6.3 billion in cash and investments and net assets of $5.2 billion.

Federal courts have in the past awarded money to plaintiffs whom the federal government promised money but never paid, Bagley said.

He questioned whether any money would be awarded during the risk corridor program’s three-year window, during which CMS can still make payments for past years.

“The big problem with the litigation right now is it may have been brought too early,” he said.

Highmark has taken several measures to cut losses in the market, including raising premiums and reducing what it pays doctors to treat patients who bought plans on the federal marketplace.

Doctors have criticized the insurer for setting premium prices too low to cover costs of treatment. Highmark’s premiums were priced among the lowest in the nation for 2014.

Wes Venteicher and Brian Bowling are Tribune-Review staff writers.

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