The U.S. Health and Human Services Department cannot erase its $24.5 million debt to a defunct Colorado health co-op under one provision of the Affordable Care Act by treating it as an offset to the insurer’s $42 million debt under a separate ACA program, a federal appeals court held yesterday, Reuters reported. Nothing in the ACA, its implementing regulations, or Colorado law allows the government to use offsets to “leapfrog other insolvency creditors” of the former Colorado Health Insurance Cooperative, the U.S. Court of Appeals for the Federal Circuit said, agreeing with the liquidator’s attorneys at Crowell & Moring. “The Supreme Court has never suggested the government has a common-law right to offset broader than that of an ordinary creditor,” wrote Circuit Judge Kimberly Moore, joined by Circuit Judges William Bryson and Raymond Chen. “And we will not create a new rule of federal common law that would allow HHS to offset.” The Federal Circuit affirmed a 2019 judgment by the U.S. Court of Federal Claims in favor of Colorado Insurance Commissioner Michael Conway, as liquidator of the insurer known as Colorado HealthOP. Colorado HealthOP was a nonprofit formed in 2013 to offer ACA-qualified health plans in the individual and small group markets. It participated in the ACA’s “3Rs” of premium-stabilization programs: the permanent “risk adjustment” program; the temporary “reinsurance” program; and the temporary “risk corridors” program. Yesterday’s opinion centered solely on the risk adjustment and reinsurance programs, which were managed by HHS but funded by insurers. At the time of its liquidation in 2016, Colorado HealthOP owed HHS $42 million in risk adjustment payments, while HHS owed the insurer $24.5 million under the reinsurance program. HHS indicated that it intended to keep the $24.5 million and seek payment of the balance through the state-court insolvency proceeding. Conway, the liquidator, sued HHS in the federal Claims Court and obtained a money judgment for the $24.5 million. On appeal, HHS argued that its right to an offset was authorized by Colorado’s insurer insolvency law or, in the alternative, that the ACA and its implementing regulations preempted the state law. The Federal Circuit said the Colorado law authorized offsets of obligations “arising out of one or more contracts” and did not apply to obligations arising out of a statute, like the ACA programs here.
