Court lacked jurisdiction to hear failed CO-OP’s claim under ACA’s ‘3Rs’ program

The U.S. District Court for the Southern District of Iowa did not have jurisdiction over claims against HHS brought by the liquidators of a failed insurance cooperative because their requested damages were purely monetary in nature and could be adequately addressed in the Court of Federal Claims. The court also found while the Court of Federal Claims could not decide the liquidators’ choice-of-law claim—because it was non-monetary in nature—it also could not decide the matter because issuing a decision on it without having jurisdiction over the other substantive claims would be tantamount to issuing an advisory opinion.

“3Rs” program. In this suit, the liquidators of CoOportunity Health, Inc. (CoOportunity), an insurer incorporated in Iowa and licensed by the states of Iowa and Nebraska to issue health insurance plans, took issue with HHS’ treatment of the startup and solvency loans CoOportunity received and the Patient Protection and Affordable Care Act’s (ACA) “3Rs” program payments. The 3Rs program consists of three programs: reinsurance (ACA, section 1341), risk adjustment (ACA, section 1343), and risk corridors (ACA, section 1342). Issuers organized under the Consumer Operated and Orientation Plan (CO-OP) program (ACA, section 1332), such as CoOportunity, are eligible to participate in all three programs. The 3Rs program was enacted to stabilize the market while issuers adjusted their actuarial estimates and to encourage participation in the new insurance marketplace.

Failure of CoOportunity. During its operation, CoOportunity received $14.7 million in startup funds and $130.6 million in solvency funds. In December 2014, CoOportunity was placed under a supervision order by the Iowa Insurance Commissioner. On February 13, 2015, HHS terminated the startup loan agreement with CoOportunity.

Effective February 28, 2015, the Iowa District Court for Polk County issued a final order of liquidation for CoOportunity. In the benefit year 2014, HHS owed CoOportunity a reimbursement under the risk adjustment and reinsurance programs. HHS netted these payments, along with other amounts owed under the ACA, and remitted a payment to the liquidators.

CoOportunity was also owed a risk corridors payment for 2014. CoOportunity’s 2014 risk corridors payment was not released because HHS placed an administrative hold on CoOportunity’s accounts, stating the insurer was insolvent and indebted to the United States. In March 2016, HHS collected CoOportunity’s $14.7 million startup loan through offset. As recently as August 2016, HHS notified the liquidators it collected payments from the monies placed on administrative hold.

Liquidators’ complaint. Court I of the liquidators’ complaint requested declaratory judgments that: (1) Iowa law governs all claims against CoOportunity; (2) HHS’ netting of payments was arbitrary and capricious; (3) HHS’ claim to super-priority was arbitrary and capricious; (4) HHS’ administrative hold was arbitrary and capricious; and (5) HHS’ netting was arbitrary and capricious.

In Count II, the liquidators’ requested an injunction: (1) mandating the release of the administrative hold on CoOportunity’s account and prohibiting any such holds from being imposed in the future; (2) prohibiting HHS from setting-off or netting any payments owed to CoOportunity against any debts claimed by HHS; and (3) enjoining HHS from attempts to collect risk adjustment charges.

In its opinion, the court characterized the liquidators’ claims as: (1) the offset claim, (2) the risk adjustment claim, and (3) the choice-of-law claim.

HHS argued that the liquidators could obtain an adequate remedy in the Court of Federal Claims under the Tucker Act. The Tucker Act (28 U.S.C. § 1491(a)(1)) grants the Court of Federal Claims jurisdiction to hear suits requesting monetary damages founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States. The liquidators contended they seek prospective injunctive relief, not available in the Court of Federal Claims under the Tucker Act.

Offset claim. The liquidators asserted HHS’ decisions to hold, net, reduce, or setoff CoOportunity’s funds were arbitrary, capricious, improper, and exceeded HHS’ jurisdiction. HHS argued the Court of Federal Claims could provide the liquidators an adequate remedy because the Court of Claims could refund all unauthorized offsets and HHS would be prohibited from offsetting further payments under the principle of res judicata.

The district court found the Court of Federal Claims could adequately address the liquidators’ offset claim. For example, if the Court of Federal Claims found the administrative hold or the setoff was improper, that court could order HHS to reimburse the liquidators. Money would adequately address the liquidators’ alleged harm. In addition, undoing the hold, offset, or netting calculations would also result in the payment of money from HHS to the liquidators. Therefore, the court decided that it did not have jurisdiction over the offset claim.

Risk adjustment claim. The liquidators also sought a declaratory judgment that HHS’ 2015 risk adjustment methodology, charges, and any attempt to collect those charges were arbitrary, capricious, and an abuse of discretion and an order enjoining HHS from any attempt to collect risk adjustment charges.

HHS countered that the liquidators’ risk adjustment claim was not redressible. If HHS did owe CoOportunity money for an improper risk adjustment calculation, HHS contended it has collected or will collect these funds and will have distributed the funds to other issuers before the liquidators will be able to obtain relief.

The district court found that in seeking a ruling that the 2015 benefit year risk adjustment methodology was improper, the liquidators sought to remedy this alleged harm by requiring HHS to re-do the calculation under a proper method. By challenging a single year of risk adjustment payments, the liquidators demonstrated their desire for HHS to recalculate the risk adjustment payment and reduce the risk adjustment payment. The court found that a money judgment in favor of CoOportunity would adequately address the liquidators’ claim. The court thereby concluded that the Court of Federal Claims could provide the liquidators adequate relief.

Choice-of-law claims. The liquidators claimed that they alleged sufficient facts to show that Iowa law should govern the liquidation process and the priority for the payment of claims in the CoOportunity liquidation.

The court found that, unlike the liquidators’ other two claims, the choice-of-law claim was equitable in nature and that the Court of Federal Claims could not provide an adequate remedy. However, the court decided that it could not exercise jurisdiction over this claim either, because issuing a decision—detached from the underlying offset and risk adjustment claims—would be tantamount to giving an advisory opinion.

SOURCE: Gerhart v. HHS, (S.D. Iowa), No. 4:16-cv-00151-RGE-CFB, March 16, 2017.

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