Issues with the Federal Government Lewis Roca Rothgerber Christie 1 - PDF document

7/20/2016 Issues with the Federal Government Lewis Roca Rothgerber Christie 1 PANEL • Moderator – Frank O’Loughlin: Lewis Roca Rothgerber Christie LLP and Counsel to Various Life and Health Insurance Guaranty Associations • Robert H. Nunnally, Jr.: Partner in Wisener Nunnally Roth, LLP. And Counsel to Receiver of SeeChange Health Insurance Co. • Douglas J. Schmidt: Partner in Husch Blackwell LLP and Counsel to Receiver of CoOportunity Health (Iowa) • Michael Conway: Colorado Deputy Commissioner of Consumer and Compliance Services and actively involved in Colorado HealthOp Liquidation Lewis Roca Rothgerber Christie 2 1

7/20/2016 The Three R’s • Reinsurance • Risk Adjustment • Risk Corridor Lewis Roca Rothgerber Christie 3 Reinsurance • Only available for individual coverage (group does not qualify) • Cost: – 2014: $12 billion + paid ($63 per member) – 2015: $7 billion + to be paid ($44 per member) – 2016: $5 billion + to be paid ($27 per member) • Payments: – 2014: 100% reinsurance for claims between $45,000 and $250,000 – 2015: ~50% reinsurance for claims between $45,000 and $250,000 Lewis Roca Rothgerber Christie 4 2

7/20/2016 Risk Adjustment • Permanent • HHS or Exchange compares actuarial risk of each plan to all other plans in state • Plans that enrolled policyholders with a lower projected actuarial risk will make payments to those that enrolled policyholders with a higher projected actuarial risk • HHS or Exchange will declare the payees and payers and issue invoices Lewis Roca Rothgerber Christie 5 Risk Corridor • Only applies to the exchange business • Partially funded by insurance companies • Congress did not allow federal funding in 2014 and 2015 • Ends in 2016 Lewis Roca Rothgerber Christie 6 3

7/20/2016 Risk Adjustment/Reinsurance • CMS offset 2014 Risk Adjustment and Reinsurance payments against one another in summer of 2015 • Also reserved 10% of 2014 Reinsurance payments for distribution in December of 2015 • CMS promised early payment of 2015 Reinsurance payments – Paid (or not) in March of 2016 Lewis Roca Rothgerber Christie 7 Risk Corridor • In July of 2015, CMS told Departments that it would be paid in full • On October 1, 2015, CMS defaulted on the Risk Corridor payments • Only paid 12.6% Lewis Roca Rothgerber Christie 8 4

7/20/2016 Disputes with the Federal Government Lewis Roca Rothgerber Christie 9 California SeeChange • CMS asserts a failure of the company to comply with ACA 3R reporting requirements • $5 million demand by CMS – Risk Adjustment default charges – Reinsurance premium – Penalties, interest, expenses Lewis Roca Rothgerber Christie 10 5

7/20/2016 Proofs of Claim • One Filed with Receiver by CMS • One Filed with Receiver by DOJ • April 22, 2016 Letter from Receiver to CMS/DOJ seeking clarification Lewis Roca Rothgerber Christie 11 DOJ Response • June 13, 2016 DOJ Letter – Assert Federal Super‐priority – ACA Preempts State Insurance Statutes and Regulations – McCarran‐Ferguson and Fabe are not Applicable – Personal Liability for Receiver if Payments Made to Others Before the Federal Government DOJ Lewis Roca Rothgerber Christie 12 6

7/20/2016 CoOportunity‐Iowa • Factual Background – Lost $163 Million Year One – CMS Requested Liquidation Date of February 28 – Discussions With CMS With Regard To Set Off Of All Charges And Loans Lewis Roca Rothgerber Christie 13 2 Types of Loans to CO‐OPs • Start‐Up Loans – Purpose to cover start‐up costs – Subordinate to policyholder claims – Other CO‐OPs given option to convert to solvency loan • Solvency Loans – Surplus notes – Used to satisfy capital requirements – Subordinate to all other claims – May be repaid only with Commissioner’s permission Lewis Roca Rothgerber Christie 14 7

7/20/2016 Who’s on First? • CMS • DOJ Lewis Roca Rothgerber Christie 15 Filed a Complaint on May 3, 2016 • Pending in Federal District Court‐‐Iowa • Defendants: CMS, HHS, Secretary of HHS and USA • Seeks Declaratory Relief and Injunctive Relief Regarding: – Application of Federal vs State Priority Statutes – CMS Netting Regulation and Application of it Arbitrary and Capricious – Contractual Subordination of Federal Loans – 2015 Risk Adjustment Charges Arbitrary and Capricious Lewis Roca Rothgerber Christie 16 8

7/20/2016 Preliminary Injunction • Declaration That Iowa Law Controls • Enjoin Future Netting Absent Court Permission • All Netted Funds Paid Into Court Lewis Roca Rothgerber Christie 17 The Decision of the Court Lewis Roca Rothgerber Christie 18 9

7/20/2016 Next Steps • Appeal of Preliminary Injunction Decision • Proceed with Prosecution of Lawsuit • Proceed with Determination of HHS Claim in Liquidation Proceeding Lewis Roca Rothgerber Christie 19 Risk Colorado HealthOp Corridor • CMS offset against Reinsurance receivables – Risk Adjustment charges – APTC and CSR overpayments – Other fees Netted • CMS failed to net all 3Rs, only netted 2 Rs • No accounting for Risk Corridor receivable Lewis Roca Rothgerber Christie 20 10

7/20/2016 Remedy: Administrative • Administrative Appeal • ACA Regulation Appeals – Calculation/Methodology • 3 Rs • APTC • CSR • Exchange Fees • Timing for Appeal Lewis Roca Rothgerber Christie 21 Administrative Appeal Status • No formal response from CMS • Within one week, CMS Wires $2.6 million • Later wires another $600,000 • No explanation from CMS Lewis Roca Rothgerber Christie 22 11

7/20/2016 Risk Adjustment • June 30, 2016 Summary Report • CO‐OP owes approximately $42 million • 2 R’s netting ‐ $18 million owed • Next move… Lewis Roca Rothgerber Christie 23 Remedies: Litigation/Oregon Class Action • Filed by management of Health Republic • Risk Corridor Receivable‐‐$2.5 billion • Filed in Federal Claims Court in D.C. • Based on the Tucker Act • Class Members – All QHP’s with a Risk Corridor receivable Lewis Roca Rothgerber Christie 24 12

7/20/2016 Tucker Act Theory • Failure by Congress to appropriate funds cannot defeat a government obligation created by statute • ACA § 1342 mandates payment of the Risk Corridor funds • The “Secretary shall pay to the plan an amount” calculated per the Risk Corridor statute Lewis Roca Rothgerber Christie 25 Other Tucker Act Suits • Pennsylvania Highmark and West Virginia Blues – Filed: May 17, 2016 – Seek: $223 million • Moda Health of Oregon – Filed: June 1, 2016 – Seeks: $180 million • BCBS of North Carolina – Filed: June 2, 2016 – Seeks: $147 million • Land of Lincoln of Illinois – Filed: June 23, 2016 – Seeks: $73 million Lewis Roca Rothgerber Christie 26 13

7/20/2016 Tucker Act Battlegrounds • Risk Corridor funds were not appropriated by Congress • “Money‐mandated statute” • Risk Corridor payments are not yet due‐3 year program • Legal issue is not ripe Lewis Roca Rothgerber Christie 27 U.S. House of Representatives v. Burwell • U.S. District Court • Decision: May 12, 2016 – Funds for ACA § 1402 (which reduces deductible, co‐pays and other cost sharing subsidies) were not appropriated by Congress – Therefore, HHS/Treasury violated U.S. Constitution by funding CSR with public funds – Judgment stayed pending appeal Lewis Roca Rothgerber Christie 28 14

7/20/2016 One More Lawsuit • Evergreen Health (Maryland COOP) files suit against U.S. on June 13, 2016 • Pending in U.S. District Court Maryland • Seeks Declaratory and Injunctive Relief • Prohibit Risk Adjustment Payments by COOP until and unless the Risk Corridor payments are made by HHS Lewis Roca Rothgerber Christie 29 Illinois Department Action • Agreed Corrective Order Entered June 27, 2016 • Prohibits Land of Lincoln from paying any Risk Adjustment charges until: – 2014 and 2015 Risk Corridor receivables are collected – Final judgment is entered in the Tucker Act litigation – Permission is granted by the DOI • Based on HHS Final Interim Order dated May 11, 2016 • “States are the primary regulators of their insurance markets” Lewis Roca Rothgerber Christie 30 15

7/20/2016 CMS Position • CMS Rejects Illinois DOI Approach • Land of Lincoln Placed into Rehabilitation on July 14, 2016 Lewis Roca Rothgerber Christie 31 Questions or Discussion Lewis Roca Rothgerber Christie 32 16