Health insurer files $2.5B class-action suit over risk corridor program shortfall

Claiming health insurers were shortchanged by the Affordable Care Act's risk corridor program, Health Republic Insurance Co. has filed a $2.5 billion class-action lawsuit against the U.S., although the CEO of the company says recoveries could be up to $5 billion.

The risk corridor program is designed to temporarily level the financial playing field for payers by limiting both unexpectedly high gains and losses associated with participating in a new insurance market. Insurers that saw greater profits paid into a pool to compensate insurers with higher losses. The three-year program, which runs through 2016, fell short by more than $2.5 billion in its first year because so many insurers experienced losses in the individual market.

In its lawsuit, Lake Oswego, Ore.-based Health Republic alleges the shortfall in 2014 caused financial distress for some insurers and put others out of business. In October, Health Republic announced it would not offer health plans in 2016.

Health Republic claims insurers participating in the risk corridor program will incur even greater losses for 2015 because, like the year prior, HHS is prevented from making any risk corridor payments with government funds.

"If not remedied, this paradigm will require insurers to sharply raise their rates and decrease benefits to protect against potential losses from this new risk pool that needs more time to stabilize, resulting in much higher costs to American taxpayers in the long run than the temporary risk corridor program itself, seemingly for perceived political gain," wrote Health Republic in its complaint.

Health Republic is seeking full payment of the risk corridor payments for itself and all other similarly situated insurers, which Health Republic CEO Dawn Bonder said could be as much as $5 billion, according to the Portland Business Journal. Ms. Bonder said repayment of its risk corridor money would allow Health Republic to repay the $60 million in loans it owes the federal government, rather than defaulting.

The lawsuit is pending in the U.S. Court of Federal Claims.

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