• The risk corridor lawsuits are in a world of hurt.

    It got lost in the election news last week, but a judge on the Court of Federal Claims has dismissed one of the risk corridor lawsuits. (Background on these lawsuits, which seek several billions of dollars from the U.S. government, is here.)

    The opinion in Land of Lincoln v. United States is long and complicated, but in brief:

    1. The court held that the insurers’ claims were ripe for review, even though the three-year program has not yet come to a close.
    2. Deferring to the administration’s interpretation of appropriations law, the court held that the ACA did not give insurers an entitlement to risk corridor money.
    3. By the same token, the court found that HHS’s agreements with health plans did not create a contractual obligation to make risk corridor payments.

     

    I think the court is mistaken on the merits, but the opinion is thorough and mercifully free of partisan shots at Obamacare. We’ll see how it fares on appeal—and how the other judges on the Court of Federal Claims resolve the other pending cases.

    Does it matter, though? As I’ve explained before, Congress is free to change appropriations law to prohibit the administration from paying any risk corridor judgments. Hillary Clinton would probably have vetoed any such effort. But with Donald Trump’s victory and unified Republican control of Congress, we’re likely to see renewed interest in sewing up the Judgment Fund.

    Insurers know this. They’ll be scrambling to settle these cases before Trump takes office. And I’m not sure what the Obama administration will do in response. The Justice Department was open to settling these cases because it faced considerable litigation risk. Trump’s election, together with this recent dismissal, markedly reduces that risk.

    At the same time, HHS probably still wants to pay insurers what it believes they are owed. Doing so will keep the exchanges as healthy as possible for as long as possible, raising the political cost to Republicans of repealing the ACA without a comprehensive replacement.

    I don’t know how the administration will resolve this tension. At a minimum, however, insurers are much less likely to get paid than they were last Monday. That gives the Justice Department a lot more bargaining leverage. If it does settle any of the risk corridor lawsuits between now and January 20, I’d expect those settlements to be much smaller than insurers anticipated.

    @nicholas_bagley

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