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Obamacare-Created Insurers Take the Feds to Court

In an effort to survive, several of the remaining health co-ops are fighting the landmark law. Unlike most legal challenges to it, they may actually have a case.

Things have gone from bad to worse for the Affordable Care Act’s health-care co-op experiment.

The federal law created co-ops (consumer-operated and -oriented plans) as a non-profit alternative to private insurers in an attempt to keep premiums down and prevent monopolies. Initially every state was slated to get their own co-op, but only 23 launched in 2014.

Two years later, all but seven have closed or have plans to close. Just this month, co-ops in Connecticut, Illinois and Oregon announced they were going out of business because of financial insolvency.

But some aren't going down without a fight.

Maryland’s co-op, Evergreen Health, filed a first-of-its-kind lawsuit in June against the federal government claiming that private insurers have gamed the system to avoid making "risk adjustment payments." Under the ACA, insurers with healthier members must make these payments to insurers with unhealthier members. But Evergreen CEO Peter Beilenson argues that his co-op was unfairly labeled as healthier because private insurers encouraged their less healthy members to go to the doctor so their patient pools would appear less healthy. Evergreen is now expected to owe between $18 million and $22 million in risk adjustment payments.

“I’m convinced the federal government is trying to kill us off," said Beilenson. "One of the goals of co-ops was to increase competition, and they’ve done the exact opposite. We think filing suit is the only way to get them to change."

And he's not the only one.

Several other co-ops and private insurers have filed lawsuits over the ACA's "risk adjustment corridor program," which differs from the risk adjustment payments that Maryland is fighting. The corridor program is a financial lifeline from the federal government to help insurers weather the uncertainty during the early years of Obamacare. But the feds announced last year that they would only honor 12.6 percent of co-ops' requested payments. 

Separate lawsuits have since been filed over the corridor program by Health Republic, a co-op in Oregon that has no plans to close; Illinois' co-op, Land of Lincoln; Blue Cross and Blue Shield of North Carolina; Highmark, a Pennsylvania-based insurer; and Moda Health, which is based in Alaska and Oregon. New Mexico’s co-op, Health Connections, is also reportedly working on plans to sue.

Legal challenges to Obamacare aren't new. Most Republican-led states and GOP members of Congress have filed lawsuits over the years but have only won a few of them. With rare exceptions, the courts have typically ruled in favor of the Affordable Care Act.

This new wave of litigation, however, may change that.

Timothy Jost, a health law professor at Washington and Lee University, is confident they have a case since the federal government promised those payments until GOP-backed legislation forced the feds to drastically cut them last year. But as for Evergreen Health’s claim that the risk adjustment payments disproportionately hurt co-ops, he “has a hard time imagining that the court will go along with that."

It’s unclear what will happen to Land of Lincoln’s suit now that it's shutting down. A representative from the Illinois Department of Insurance said they don’t comment on pending litigation, and the question even stumped experts. 

“Land of Lincoln could continue to exist as a legal entity in order to keep the suit going, but I can’t say that will happen for certain,” said Jost.

For now, there are around 50,000 people in Illinois with co-op plans that are going away soon.

“It’s all a wait-and-see right now. We are telling people to keep paying their premiums, since most co-ops have waited until the end of the year to officially close their doors. We’re hoping that’ll be the case with Land of Lincoln,” said Stephani Becker, a health policy specialist for the Sargent Shriver National Center on Poverty Law.  

Regardless of the outcome of any of the lawsuits, experts -- and even President Obama -- seem to agree that it’s only a matter of time before all the co-ops dissolve. The co-ops are considered to be the substitute for a public option plan, which didn’t make it into the final draft of the ACA. Last week, Obama wrote in the journal of the American Medical Association that he hopes Congress revisits a public option plan after he leaves office. 

“I’m sure the administration could have handled things differently, but I don’t think [the co-ops] were an adequate substitute for a public option,” said Jost. “It was an interesting experiment, but I just don’t think it will work out."

Mattie covers all things health for Governing.

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