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Insurers Can Bring Class Action for Unpaid ACA Cost Sharing Reduction Payments

(Parker Tax Publishing May 2018)

The Court of Federal Claims allowed a lawsuit against the government by health insurers for unpaid cost sharing reduction (CSR) payments under the Affordable Care Act to go forward as a class action. The court found that the putative class representative satisfied all of the requirements for class certification and rejected the government's argument that a class action would be unmanageable due to the many individualized computations that it claimed would be required as a result of insurers offsetting the unpaid CSR payments by raising premiums in order to receive increased premium tax credit payments. Common Ground Healthcare Cooperative v. U.S., 2018 PTC 110 (Fed. Cl. 2018).


The Affordable Care Act (ACA) includes a series of interlocking reforms designed to expand coverage in the individual health insurance market. To mitigate the risk to insurers resulting from such expanded coverage, the ACA included three premium stabilization programs: a temporary risk corridor program, premium tax credits for eligible individuals, and cost sharing reduction (CSR) payments to insurers.

The temporary risk corridor program required the Department of Health and Human Services (HHS) to make payments to insurers whose costs to provide benefits exceeded the premiums they received, and to collect payments from insurers whose costs were less than the premiums they received. The Code Sec. 36B premium tax credit was designed reduce the premiums for individuals with incomes between 100 percent and 400 percent of the poverty line by providing for periodic advance payments to insurers offering plans in which the eligible individuals are enrolled, and requiring insurers to use these payments to reduce premiums for these individuals. CSR payments were intended to reduce out-of-pocket expenses of eligible individuals by requiring insurers to reduce these individuals' cost sharing obligations and providing for reimbursements to insurers for the CSR payments they make. The overall effect of these reforms is that the tax credits help people obtain insurance and the CSR payments help people obtain treatment once they have insurance.

The government began making CSR payments to insurers in 2014. However, in October 2017, the government terminated these payments based on Attorney General Session's conclusion that Congress had not appropriated any funds for that purpose. Because insurers were still required to reduce eligible individuals' cost sharing obligations, the lack of reimbursement had the potential to cause serious financial strain on the insurers, who might then increase premiums to make up for the lost CSR payments or withdraw from the exchanges. Some insurers did, in fact, increase premiums.

In 2016, an insurer filed a putative class action in the Court of Federal Claims alleging the government had not fully paid the risk corridors payments to which insurers were entitled in 2014 and 2015. The government did not dispute that the insurers in that case satisfied the requirements for class certification under Rule 23 of the Rules of the Court of Federal Claims, and the court certified a class of insurers who were owed risk corridors payments. Common Ground Healthcare Cooperative opted in to the certified class in that case.

In 2017, Common Ground filed its own putative class action to recover, for itself and other insurers, unpaid risk corridors payments for 2016. Several months later, Common Ground amended its complaint to add a claim for the CSR payments that the government had not made since October 2017. Several other insurers then either filed suit or added claims to their existing complaints for the unpaid CSR payments. In December 2017, Common Ground moved to certify two classes: a risk corridors class and a CSR class. The government did not dispute the risk corridors class, and the court certified it. However, the government opposed Common Ground's motion to certify a CSR class.


Rule 23 includes several requirements for maintaining a class action in the Court of Federal Claims. A putative class representative must demonstrate that (1) the proposed class is so large that joinder is impractical, (2) common questions of law or fact predominate over individual issues, (3) the representative's claims are typical of the proposed class, and (4) that a class action is the fairest and most efficient method of resolving the suit (the superiority requirement). The superiority requirement is met if a class action would achieve economies of time, effort and expense and promote uniformity of decision as to others similarly situated.

The government did not dispute that the first three requirements had been met, but contended that Common Ground had not established that a class action was superior to other methods of resolving the insurers' claims for unpaid CSR payments. According to the government, consolidation was superior to a class action because the court would need to make many individualized determinations due to the fact that some insurers would have made up for the unpaid CSR payments by increasing premiums, resulting in increased premium tax credit payments. To support the government's contention that such an offset was permitted under the ACA, the government cited California vs. Trump, 267 F.Supp. 3d 1119 (N.D. Cal. 2017), where a district court discussed how insurers were coping with the lost CSR payments by raising premiums to obtain larger premium tax credit payments.

The Court of Federal Claims rejected the government's arguments and certified the CSR class of insurers. First, the court found that there was no statutory support for permitting insurers to use premium tax credit payments to offset unpaid CSR obligations, even if insurers had intentionally increased premiums to obtain larger premium tax credit payments to make up for the lost CSR payments. The court found that the California vs. Trump decision did not support the availability of such an offset because nowhere did the district court hold that the government's liability for CSR payments was lessened or eliminated by the government making larger premium tax credit payments to insurers. In the view of the Court of Federal Claims, the district court had clearly emphasized that the tax credit and cost reduction provisions were separate and distinct. The district court found that by placing these provisions in separate Titles of the U.S. Code, Congress was aware of the different way in which each one fit into the ACA's statutory scheme. Moreover, the Court of Federal Claims found that the portion of the district court's opinion on which the government was relying was focused not on the government's obligation to make payments to insurers but on how the increase in premiums would affect the public.

The Court of Federal Claims recognized that the parties had not yet fully briefed the issue of whether the government's obligation to make CSR payments was mitigated by its increased premium tax credit payments. But given the lack of cited authority supporting the availability of such an offset, the court reasoned that the determination of the amount due to each potential class member appeared to consist of a straightforward calculation based on data obtained from the affected insurers. Thus, the court assumed for purposes of deciding the class certification issue that the individual damages determinations would be uncomplicated.

The court noted that the government had not argued that insurers had a strong interest in litigating their own separate actions, or that numerous individual class members had filed their own lawsuits regarding CSR payments. The government had challenged only the manageability of the proposed class action, and the court found that Common Ground had successfully rebutted that argument. In the court's view, each insurer was affected by the same government action in the same way. A class action would therefore be more efficient than consolidation because insurers could pursue their CSR claims without having to file separate complaints. Further, a class action would relieve both the government and the court of the burdens associated with managing potentially hundreds of new cases with virtually identical allegations. The court concluded that consolidation of CSR claims would be more cumbersome than allowing insurers to pursue their claims in a class action.

For a discussion of the health plan premium assistance credit, see Parker Tax ¶102,610.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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