Highmark Files Suit Against Federal Government Alleging Breaches Of Risk Corridor Obligations Under Patient Protection And Affordable Care Act (“ACA”)

PITTSBURGH, May 17, 2016 /PRNewswire/ -- Highmark Inc. and certain of its health insurance subsidiaries and affiliates ("Highmark") today filed litigation in the U.S. Court of Federal Claims to recover damages owed for the federal government's failure to honor its statutory and contractual obligations related to the insurer's participation in the health care exchanges created by the Patient Protection and Affordable Care Act ("ACA"). 

More specifically, this lawsuit arises out of the United States' refusal to pay in full the amounts owed to the Highmark insurers under the ACA's risk corridor program for the calendar year 2014 ("CY 2014").  The refusal is in breach of the government's explicit obligations created by statute, regulation, express contracts and implied-in-fact contracts, and is in contravention of the government's public statements that induced the Highmark insurers to participate in the ACA marketplace. 

As part of the ACA, the federal government created the risk corridors program to serve as a temporary stabilizing force as the individual markets transitioned from a pre-ACA to a post-ACA environment.  Risk corridors are an integral element of the legislation designed to mitigate the pricing risk to insurers due to a lack of information on the past medical costs incurred by new ACA enrollees, and were intended by Congress to mitigate insurers' financial losses each year from 2014-2016.

Since the ACA's rollout, Highmark has demonstrated its willingness to be a meaningful partner in the ACA program and has agreed to participate in good faith, with the understanding that the United States would honor its statutory, regulatory, and contractual commitments regarding the premium-stabilization programs, including the temporary risk corridors program.  Pursuant to the risk corridors program and its losses during the first year, Highmark is owed nearly $223 million, less any prorated amounts actually paid by the government for CY 2014 alone. 

After repeated government admissions that the CY 2014 risk corridor payments are owed and would be paid in full, the Centers for Medicare and Medicaid Services ("CMS") has paid only approximately $27.3 million of this total now past due.  Highmark's repeated efforts to resolve the United States' failure to pay the full amount of CY 2014 risk corridors payments owed have been unsuccessful, necessitating Highmark's filing of this lawsuit.

"Highmark entered the ACA markets in good faith – as encouraged by the federal government – with the assurance that the government would fulfill its legal commitments," said Highmark Health President and Chief Executive Officer David Holmberg. "Given the federal government's failure to honor its obligations, even after repeated assurances that it would do so, we have no choice but to file litigation.  We have a fiduciary responsibility to our 5.2 million health plan members to seek payment."

"Highmark remains committed to the individual insurance marketplace and its goal of guaranteeing that individuals receive the best coverage for their needs at an affordable price. Our stance has not changed," added Holmberg. "Ensuring that the ACA market is viable for the future is a responsibility that should be shared by the entire health care community.  We cannot regress and put the health of 12.7 million people at risk.  It is essential we get the right premium rates, the right care delivery networks, and the right care management programs in place to stabilize the market so that it can sustain itself." 

"The government's refusal to make timely and full risk corridor payments to Highmark under the ACA is a direct breach of the government's explicit statutory, regulatory, and contractual obligations.  In the case of Medicare Part D, risk corridors successfully protected consumers from market volatility and helped keep coverage affordable," explained Thomas VanKirk, ‎Highmark Health's Chief Legal Officer. "Under Medicare Part D, enacted under President George W. Bush, the government fulfilled its legal obligation to share unintended risk with insurance companies.  This time, however, the government has failed to honor its obligations and Highmark has no choice but to file litigation to enforce the government's obligations to recover the full risk corridor payments owed."

The facts outlined in the lawsuit include:

• The ACA's introduction of millions of previously uninsured or underinsured citizens into the health care marketplace posed great uncertainty to health insurers, including Highmark, that had no previous experience or reliable data to meaningfully assess the risks and setting of premiums for this new population of insureds under the ACA.
• Congress, recognizing such uncertainty for health insurers, included in the ACA three premium-stabilization programs to help protect health insurers against risk selection and market uncertainty, including the temporary risk corridors program which mandated that certain health insurers which incurred losses under the ACA be paid annual risk corridor payments based on a statutorily prescribed formula to provide such insurers with stability as insurance market reforms began. This program was modeled on a similar program in Medicare Part D signed into law by President George W. Bush.
• This lawsuit arises out of the United States' failure or refusal to make timely and full risk corridor payments to the Highmark insurers for CY 2014, in breach of explicit obligations created by statute, regulation, express contracts and implied-in-fact contracts, and in contravention of statements made by the government that induced the Highmark insurers to participate in the ACA marketplace. The government's failure to pay also breached its duties of good faith and fair dealing implied in all of its contracts with Highmark.
• The government's withholding of the risk corridor payments due also effected a taking of Highmark's property without just compensation in violation of the Fifth Amendment of the United States Constitution.
• Highmark's repeated efforts to resolve the United States' failure or refusal to timely pay the full amount of CY 2014 risk corridors payments owed have been unsuccessful, necessitating the filing of this lawsuit.
• Should the Court determine that the United States breached its statutory, regulatory and contractual obligations to provide full and timely CY 2014 risk corridor payments to the Highmark insurers, Highmark seeks additional declaratory relief that the government's CY 2015 and CY 2016 risk corridor payments must be made on time and in full, in accordance with the government's legal obligations.
• Highmark is represented by Reed Smith LLP in the action filed in the U.S. Court of Federal Claims in Washington, D.C. on May 17, 2016.

ABOUT HIGHMARK INC.

Highmark Inc. is among the ten largest health insurers in the United States and is the fourth-largest Blue Cross and Blue Shield-affiliated company.  Highmark and its diversified businesses and affiliates operate health insurance plans in Pennsylvania, Delaware and West Virginia that serve 5.2 million members. Its diversified health businesses serve group customer and individual health needs across the United States through dental insurance, vision care and other related health businesses. Highmark is an independent licensee of the Blue Cross and Blue Shield Association, an association of independent Blue Cross and Blue Shield companies. For more information, visit www.highmark.com.

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SOURCE Highmark Inc.