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From Health Reform WK-EDGE, March 1, 2019

HHS owes CSR expenses, must pay nearly $6 million

By Cathleen Calhoun, J.D.

L.A. Care Health Plan, a local health authority for Los Angeles County in California, successfully argued that it is owed about $6 million in unpaid cost sharing reduction (CSR) payments from the government.

L.A. Care Health Plan, a qualified health plan (QHP) offering plans on California’s exchange, was paid subsidies under the Affordable Care Act (ACA) (P.L. 111-148) for out-of-pocket expenses it incurred for certain impoverished plan members, until October 2017 when the government payments stopped. The U.S. Court of Federal Claims agreed with the exchange that (1) the plain language of the ACA obligates the government to make full CSR payments to QHPs in advance of actual incurred costs, and (2) the cost sharing reduction (CSR) program created an implied-in-fact contract between the exchange and the government (Local Initiative Health Authority for L.A. County v. U.S., February 14, 2019, Wheeler, T.).

CSR program. The CSR program is a subsidy under the ACA where customers who are enrolled in an exchange at a silver plan level (income below 250 percent of the poverty level) may have their out-of-pocket expenses reduced by the exchange. The exchange is paid back by the government in an amount equal to the reductions, through periodic and timely payments, under ACA §1402 and §1412. The relevant sections of the ACA have never been repealed or replaced.

ACA language. The ACA provision requiring periodic and timely payments to the issuer equal to the value of the reductions can only mean one thing—the government must repay QHPs for their CSR expenses. The court noted that the unambiguous "shall make" language indicated a binding obligation to pay, and that it is powerless to construe it any differently. The government’s argument, that Congress’ failure to appropriate funds for the CSR program meant that Congress never intended to bind the government to make CSR payments, was flatly inconsistent with over a century of case law, and a recent decision as well, according to the court. No provision of the ACA created a cap or limit on the payments.

Implied-in-fact contract. The existence of an implied-in-fact contract, the L.A. Care Health Plan’s other claim, was also found by the court to be true. Congress made an unambiguous promise to repay issuers for their CSR expenses in §1402 and §1412 of the ACA and that commitment enticed issuers to participate in the exchanges. The government’s offer was clearly made in the sections, and acceptance of the offer was only possible through the exchange performing its half of the bargain. The government offered consideration in the form of advanced CSR payments, and the Secretary of HHS had the authority to contract. The government’s failure to pay from October 2017 and beyond constitutes a breach of contract, according to the court.

Property right. L.A. Care Health has a vested property right in the CSR payments, but that right has not been taken—it can still enforce the contract, according to the court. The government has not taken the property.

The government promised to make full and advanced CSR payments by statue and by contract. According to the court, the government is now liable, and L.A. Care Health should not suffer consequences for believing the government’s words.

The case is No. 17-1542C.

Attorneys: Lawrence S. Sher (Reed Smith LLP) for Local Initiative Health Authority for L.A. County d/b/a L.A. Care Health PLA. Albert S. Iarossi, U.S. Department of Justice, for the United States.

Companies: Local Initiative Health Authority for L.A. County d/b/a L.A. Care Health PLA

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