from the United States Court of Federal Claims in No.
1:16-cv-00649-TCW, Thomas C. Wheeler, Judge
Rosenbaum, Covington & Burling LLP, Washington, DC,
argued for plaintiff-appellee. Also represented by Shruti
Chaganti Barker, Caroline Brown, Philip Peisch.
Beth Klein, Appellate Staff, Civil Division, United States
Department of Justice, Washington, DC, argued for
defendant-appellant. Also represented by Chad A. Readler,
Mark B. Stern.
G. Hungar, Office of General Counsel, United States House of
Representatives, Washington, DC, for amicus curiae United
States House of Representatives. Also represented by Kimberly
Hamm, Todd B. Tatelman.
William Lewis Roberts, Faegre Baker Daniels LLP, Minneapolis,
MN, for amicus curiae Association for Community Affiliated
Plans. Also represented by Jonathan William Dettmann, Kelly
J. Fermoyle, Nicholas James Nelson.
Allen Neeley, Jr., Husch Blackwell LLP, Washington, DC, for
amicus curiae National Association of Insurance
Stephen A. Swedlow, Quinn Emanuel Urquhart & Sullivan,
LLP, Chicago, IL, for amicus curiae Health Republic Insurance
Taylor, Butler Rubin Saltarelli & Boyd LLP, Chicago, IL,
for amicus curiae Blue Cross Blue Shield Association. Also
represented by Sandra J. Durkin.
Benjamin N. Gutman, Oregon Department of Justice, Salem, OR,
for amici curiae State of Oregon, State of Alaska, State of
Connecticut, State of Hawaii, State of Illinois, State of
Iowa, State of Maryland, State of Massachusetts, State of
Minnesota, State of New Mexico, State of North Carolina,
State of Pennsylvania, State of Rhode Island, State of
Vermont, State of Virginia, State of Washington, State of
Wyoming, District of Columbia.
Prost, Chief Judge, Newman and Moore, Circuit Judges.
health insurer contends that the government failed to satisfy
the full amount of its payment obligation under a program
designed to alleviate the risk of offering coverage to an
expanded pool of individuals. The Court of Federal Claims
entered judgment for the insurer on both statutory and
contract grounds. The government appeals. We reverse.
case concerns a three-year "risk corridors" program
described in the Patient Protection and Affordable Care Act,
Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified at 42
U.S.C. §§ 18001 et seq.) ("ACA"), and
implemented by regulations promulgated by the U.S. Department
of Health and Human Services ("HHS"). The case also
concerns the bills that appropriated funds to HHS and the
Centers for Medicare & Medicaid Services
("CMS") within HHS for the fiscal years during
which the program in question operated. We begin with the
other reforms, the ACA established "health benefit
exchanges"-virtual marketplaces in each state wherein
individuals and small groups could purchase health coverage.
42 U.S.C. § 18031(b)(1). The new exchanges offered
centralized opportunities for insurers to compete for new
customers. The ACA required that all plans offered in the
exchanges satisfy certain criteria, including providing
certain "essential" benefits. See 42
U.S.C. §§ 18021, 18031(c).
insurers lacked reliable data to estimate the cost of
providing care for the expanded pool of individuals seeking
coverage via the new exchanges, insurers faced significant
risk if they elected to offer plans in these exchanges. The
ACA established three programs designed to mitigate that risk
and discourage insurers from setting higher premiums to
offset that risk: reinsurance, risk adjustment, and risk
corridors. 42 U.S.C. §§ 18061- 63. This case
concerns the risk corridors program.
1342 of the ACA directed the Secretary of HHS to establish a
risk corridors program for calendar years 2014-2016. The full
text of Section 1342 is reproduced below:
(a) In general
The Secretary shall establish and administer a program of
risk corridors for calendar years 2014, 2015, and 2016 under
which a qualified health plan offered in the individual or
small group market shall participate in a payment adjustment
system based on the ratio of the allowable costs of the plan
to the plan's aggregate premiums. Such program shall be
based on the program for regional participating provider
organizations under part D of title XVIII of the Social
Security Act [42 U.S.C. §§ 1395w-101 et seq.].
(b) Payment methodology
(1) Payments out
The Secretary shall provide under the program established
under subsection (a) that if-
(A) a participating plan's allowable costs for any plan
year are more than 103 percent but not more than 108 percent
of the target amount, the Secretary shall pay to the plan an
amount equal to 50 percent of the target amount in excess of
103 percent of the target amount; and
(B) a participating plan's allowable costs for any plan
year are more than 108 percent of the target amount, the
Secretary shall pay to the plan an amount equal to the sum
of 2.5 percent of the target amount plus 80 percent of
allowable costs in excess of 108 percent of the target
(2) Payments in
Secretary shall provide under the program established under
subsection (a) that if-
(A) a participating plan's allowable costs for any plan
year are less than 97 percent but not less than 92 percent of
the target amount, the plan shall pay to the Secretary an
amount equal to 50 percent of the excess of 97 percent of the
target amount over the allowable costs; and
(B) a participating plan's allowable costs for any plan
year are less than 92 percent of the target amount, the plan
shall pay to the Secretary an amount equal to the sum of 2.5
percent of the target amount plus 80 percent of the excess of
92 percent of the target amount over the allowable costs.
(1) Allowable costs
(A) In general
The amount of allowable costs of a plan for any year is an
amount equal to the total costs (other than administrative
costs) of the plan in providing benefits covered by the plan.
(B) Reduction for risk adjustment and reinsurance payments
Allowable costs shall [be] reduced by any risk adjustment and
reinsurance payments received under section[s] 18061 and
18063 of this title.
(2) Target amount
The target amount of a plan for any year is an amount
equal to the total premiums (including any premium subsidies
under any governmental program), reduced by the
administrative costs of the plan.
42 U.S.C. § 18062.
section 1342 directed the Secretary of HHS to establish a
program whereby participating plans whose costs of providing
coverage exceeded the premiums received (as determined by a
statutory formula) would be paid a share of their excess
costs by the Secretary- "payments out." Conversely,
participating plans whose premiums exceeded their costs
(according to the same formula) would pay a share of their
profits to the Secretary-"payments in." The risk
corridors program "permit[ted] issuers to lower
[premiums] by not adding a risk premium to account for
perceived uncertainties in the 2014 through 2016
markets." HHS Notice of Benefit and Payment Parameters
for 2014, 78 Fed. Reg. 15, 410, 15, 413 (Mar. 11, 2013).
March 20, 2010, just three days before Congress passed the
ACA, the Congressional Budget Office ("CBO")
published an estimate of the ACA's cost. See
Letter from Douglas Elmendorf, Director, CBO, to Nancy
Pelosi, Speaker, House of Representatives tbl. 2 (Mar. 20,
2010) ("CBO Cost Estimate"),
amendreconprop.pdf. The CBO Cost Estimate made no mention of
the risk corridors program, though it scored the reinsurance
and risk adjustment programs. Id. Overall, CBO
predicted the ACA would reduce the federal deficit by $143
billion over the 2010-2019 period it evaluated. Id.
language in the ACA referred to CBO's overall scoring,
noting that the "Act will reduce the Federal deficit
between 2010 and 2019." ACA § 1563(a).
March 2012, HHS promulgated regulations establishing the risk
corridors program as directed by section 1342. Standards
Related to Reinsurance, Risk Corridors and Risk Adjustment,
77 Fed. Reg. 17, 220, 17, 251-52 (Mar. 23, 2012) (codified at
45 C.F.R. Pt. 153, Subpart F). Those regulations defined
terms such as "allowable costs, "
"administrative costs, " "premiums earned,
" and "target amount, " all of which would
ultimately factor into the calculations of payments in and
payments out required by the statutory formula.
E.g., id. at 17, 236-39.
regulations also provided that insurers offering qualified
health plans in the exchanges "will receive payment from
HHS in the following amounts, under the following
circumstances" and it recited the same formula set forth
in the statute for payments out. 45 C.F.R. § 153.510(b).
The regulations similarly provided that insurers "must
remit charges to HHS" according to the statutory formula
for payments in. Id. § 153.510(c).
March 2013, after an informal rulemaking proceeding, HHS
published parameters for payments under various ACA programs
for the first year of the exchanges, 2014, including the risk
corridors program. The parameters revised certain definitions
and added others, notably incorporating a certain level of
profits as part of the allowable administrative costs. 78
Fed. Reg. at 15, 530-31 (codified at 45 C.F.R. §
153.530). The parameters also provided that an issuer of a
plan in an exchange must submit all information required for
calculating risk corridors payments by July 31 of the year
following the benefit year. Id. HHS also indicated
that "the risk corridors program is not required to be
budget neutral, " so HHS would make full payments
"as required under Section 1342 of the Affordable Care
Act." 78 Fed. Reg. at 15, 473. This constituted the
final word from HHS on the risk corridors program before the
exchanges opened and the program began.
established several reforms for insurance plans-such as
requiring a minimum level of coverage- scheduled to take
effect on January 1, 2014. ACA § 1255. Non-compliant
plans in effect prior to the passage of the ACA in 2010,
however, received a statutory exemption from certain
requirements. 42 U.S.C. § 18011. This meant that
insurers expected the pool of participants in the exchanges
to include both previously uninsured individuals as well as
individuals whose previous coverage terminated because their
respective plans did not comply with the ACA and did not
qualify for the grandfathering exemption.
and small businesses enrolled in non-compliant plans not
qualifying for the exemption received notice that their plans
would be terminated. Many expressed concern that new coverage
would be "more expensive than their current coverage,
and thus they may be dissuaded from immediately transitioning
to such coverage." J.A. 429. In November 2013, after
appellee Moda Health Plan, Inc. and other insurers had
already set premiums for the exchanges for 2014, HHS
announced a one-year transitional policy that allowed
insurers to continue to offer plans that did not comply with
certain of the ACA's reforms even for non-grandfathered
plans. J.A. 429-31. HHS directed state agencies to adopt the
same policies. J.A. 431.
dampened ACA enrollment in states implementing the policy,
especially by healthier individuals who elected to maintain
their lower level of coverage, leaving insurers participating
in the exchanges to bear greater risk than they accounted for
in setting premiums. See Milliman, A Financial
Post-Mortem: Transitional Policies and the Financial
Implications for the 2014 Individual Market 1 (July 2016)
("Our analysis indicates that issuers in states that
implemented the transitional policy generally have higher
medical loss ratios in the individual market."),
acknowledged that "this transitional policy was not
anticipated by health insurance issuers when setting rates
for 2014" but noted "the risk corridor program
should help ameliorate unanticipated changes in premium
revenue." Id. HHS later extended the
transitional period to last the duration of the risk corridor
program. J.A. 448-62.
further informal rulemaking (begun soon after announcing the
transitional policy), HHS informed insurers that it would
adjust the operation of the risk corridors program for the
2014 benefit year to "offset losses that might occur
under the transitional policy as a result of increased claims
costs not accounted for when setting 2014 premiums."
HHS Notice of Benefit and Payment Parameters for
2015, 79 Fed. Reg. 13, 744, 13, 786-87 (Mar. 11, 2014).
This included adjustments to HHS's formula for
calculating the "allowable costs" and "target
amount" involved in the statutory formula. Id.
projected that these new changes (together with changes to
the reinsurance program) would "result in net payments
that are budget neutral in 2014" and that it
"intend[ed] to implement this program in a budget
neutral manner" with adjustments over time with that
goal in mind. Id. at 13, 787.
April 2014, CMS, the division of HHS responsible for
administering the risk corridors program, released guidance
regarding "Risk Corridors and Budget Neutrality."
J.A. 229-30. It explained a new budget neutrality policy as
We anticipate that risk corridors collections will be
sufficient to pay for all risk corridors payments. However,
if risk corridors collections are insufficient to make risk
corridors payments for a year, all risk corridors payments
for that year will be reduced pro rata to the extent of any
shortfall. Risk corridors collections received for the next
year will first be used to pay off the payment reductions
issuers experienced in the previous year in a proportional
manner, up to the point where issuers are reimbursed in full
for the previous year, and will then be used to fund current
year payments. If, after the obligations for the previous
year have been met, the total amount of collections available
in the current year is insufficient to make payments in that
year, the current year payments will be reduced pro rata to
the extent of any shortfall. If any risk corridors funds
remain after prior and current year payment obligations have
been met, they will be held to offset potential
insufficiencies in risk corridors collections in the next
any shortfall in the final year of payment, CMS stated it
anticipated payments in would be sufficient, but that future
guidance or rulemaking would address any persistent
shortfalls. J.A. 230.
February 2014, after HHS had proposed its adjustments to
account for the transitional policy (but before HHS had
finalized the adjustments), Congress asked the Government
Accountability Office ("GAO") to determine what
sources of funds could be used to make any payments in
execution of the risk corridors program. See
Dep't of Health & Human Servs.-Risk Corridors Program
("GAO Report"), B-325630, 2014 WL 4825237, at *1
(Comp. Gen. Sept. 30, 2014) (noting request). GAO responded
that it had identified two potential sources of funding in
the appropriations for "Program Management" for CMS
in FY 2014. That appropriation included a lump sum in excess
of three billion dollars for carrying out certain
responsibilities, including "other
responsibilities" of CMS as well as "such sums as
may be collected from authorized user fees."
Id. at *3 (citing Pub. L. No. 113-76, div. H, title
II, 128 Stat. 5, 374 (Jan. 17, 2014)).
concluded that the "other responsibilities"
language in the CMS Program Management appropriation for FY
2014 could encompass payments to health plans under the risk
corridors program, and so the lump-sum appropriation
"would have been available for making payments pursuant
to section 1342(b)(1)." Id. Further, GAO
concluded that the payments in from the risk corridors
program constituted "user fees, " and so "any
amounts collected in FY 2014 pursuant to section 1342(b)(2)
would have been available . . . for making the payments
pursuant to section 1342(b)(2), " though HHS had not
planned to make any such collections or payments until FY
2015. Id. at *5 & n.7.
clarified that appropriations acts "are considered
nonpermanent legislation, " so the language it analyzed
regarding the lump-sum appropriation and user fees
"would need to be included in the CMS PM appropriation
for FY 2015" in order to be available to make any risk
corridors payments in FY 2015. Id.
December 2014, Congress passed its appropriations to HHS for
FY 2015 (during which the first benefit year covered by the
risk corridors program would conclude). That legislation
reenacted the user fee language that GAO had analyzed and
provided a lump sum for CMS's Program Management account;
however, the lump-sum appropriation included a rider
None of the funds made available by this Act from the Federal
Hospital Insurance Trust Fund or the Federal Supplemental
Medical Insurance Trust Fund, or transferred from other
accounts funded by this Act to the 'Centers for Medicare
and Medi-caid Services-Program Management' account, may
be used for payments under Section 1342(b)(1) of Public Law
111-148 (relating to risk corridors).
Consolidated and Further Continuing Appropriations Act, 2015,
Pub. L. No. 113-235, div. G, title II, § 227, 128 Stat.
Harold Rogers, then-Chairman of the House Committee on
Appropriations, explained his view of the appropriations
rider upon its inclusion in the appropriations bill for FY
In 2014, HHS issued a regulation stating that the risk
corridor program will be budget neutral, meaning that the
federal government will never pay out more than it collects
from issuers over the three year period risk corridors are in
effect. The agreement includes new bill language to prevent
CMS Program Management appropriation account from being used
to support risk corridors payments.
160 Cong. Rec. H9838 (daily ed. Dec. 11, 2014).
enacted identical riders in FY 2016 and FY 2017. Consolidated
Appropriations Act, 2016, Pub. L. No. 114-113, div. H, §
225, 129 Stat. 2242, 2624; Consolidated Appropriations Act,
2017, Pub. L. No. 115-31, div. H, title II, § 223, 131
Stat. 135, 543.
Subsequent Agency Action
September 2015, CMS announced that the total amount of
payments in fell short of the total amount requested in
payments out. Specifically, it expected payments in of
approximately $362 million but noted requests for payments
out totaling $2.87 billion. J.A. 244. Accordingly, CMS
planned to issue prorated payments at a rate of 12.6 percent,
with any shortfall to be made up by the payments in received
following the 2015 benefit year. Id.
follow-up letter noted that HHS would "explore other
sources of funding for risk corridors payments, subject to
the availability of appropriations" in the event of a
shortfall following the final year of the program. J.A. 245.
report from CMS shows that the total amount of payments in
collected for the 2014-2016 benefit years fell short of the
total amount of payments out calculated according to the
agency's formula by more than $12 billion. CMS, Risk
Corridors Payment and Charge Amounts for the 2016 Benefit
Year (November 2017),
commenced this action in the Court of Federal Claims under
the Tucker Act in July 2016. It seeks the balance between the
prorated payments it received and the full amount of payments
out according to section 1342. The Court of Federal Claims
denied the government's motion to dismiss for lack of
jurisdiction and for failure to state a claim and granted
Moda's cross-motion for partial summary judgment as to
sides stipulated that the government owed Moda $209, 830,
445.79 in accordance with the ruling on liability. J.A. 41.
The trial court entered judgment for Moda accordingly. J.A.
of other insurers filed actions alleging similar claims, with
mixed results from the Court of Federal Claims. See,
e.g., Molina Healthcare of Cal., Inc. v. United
States, 133 Fed.Cl. 14 (2017) (ruling for the insurer);
Me. Cmty. Health Options v. United States, 133
Fed.Cl. 1 (2017) (ruling for the government).
Court of Federal Claims had jurisdiction under the Tucker
Act, 28 U.S.C. § 1491(a)(1). We have jurisdiction under
28 U.S.C. § 1295(a)(3).
advances claims based on two theories. First, Moda contends
that section 1342 itself obligates the government to pay
insurers the full amount indicated by the statutory formula
for payments out, notwithstanding the amount of payments in
collected. Second, Moda contends that HHS made a contractual
agreement to pay the full amount required by the statute in
exchange for Moda's performance (by offering a compliant
plan in an exchange), and the government breached that
agreement by failing to pay the full amount according to the
statutory formula for payments out.
review the Court of Federal Claims' legal conclusion that
the government was liable on both theories de novo. See
Starr Int'l Co. v. ...