Federal Court Gives UnitedHealth a Break from N.Y. Risk-Adjustment Adjustment

A regulation promulgated by New York department in 2016 lets the department determine whether the ACA risk-adjustment program will have an adverse effect on small-group insurers in New York state. If the department makes that determination, the regulation requires insurers that received money from the ACA risk-adjustment program to pay into a fund managed by the New York department. The department then distributes that money to insurers that are expected to be hurt by the federal program.

UnitedHealthcare argued in its lawsuit against the regulation that the New York department lacked the authority to promulgate such a rule because the federal program would, in theory, supersede it. The insurer argued that the New York department was illegally attempting to seize its funds in a way that was not allowed by statute.

Koeltl disagreed in his decision dismissing the lawsuit in August. The judge pointed to a provision in the federal risk-adjustment program that allowed states to use their own authorities to adjust for unintended consequences. That's what New York department did when it created the regulation, he argued.

UnitedHealthcare is set to ask the 2nd Circuit to review the decision by Koeltl, who said the insurer failed to state a claim upon which relief can be granted. UnitedHealthcare is expected to argue that relief could be granted by the court if the state's regulation is determined to be unconstitutional.

That would save UnitedHealthcare from having to pay an estimated $65 million into the New York department's fund sometime in the near future. UnitedHealthcare appears to be on track to get about $200 million in ACA risk-adjustment program payments.

UnitedHealthcare won't have to worry about that payment for at least another month, while it prepares its briefs for the 2nd Circuit and waits for a response from the state.

The 2nd Circuit judges on the panel that granted the injunction were John Walker Jr., Pierre Leval and Christopher Droney.

This is the second time UnitedHealthcare has asked for the regulation to be paused while it appeals Koeltl's decision. The company initially asked Koeltl in September for a stay, which he denied. He said at the time that stopping the regulation could do more harm to small-group insurers than keeping the regulation in effect would do to UnitedHealthcare. The judge argued that UnitedHealthcare had more than enough resources to foot the state program bills.

"The defendant points out that a potential $65 million dollar loss is a fraction of Oxford Health Insurance's anticipated 2017 total Federal Risk Adjustment receivable, which will be greater than $200 million," Koeltl wrote at the time. "And $65 million is but a small fraction of UnitedHealth Group's reported 2016 operating revenues, which totaled more than $184 billion. That potential loss is more than offset by the harm to the small [group] insurance market in New York state if the state program is enjoined."

Neal Katyal, a partner at Hogan Lovells, and Steven Rosenbaum, a partner at Covington & Burling, are representing UnitedHealthcare, on the appeal. Both are based in Washington, D.C. A spokesman from the New York department declined to comment on the injunction.

— With assistance from Allison Bell.

— Read : New York to Add Emergency ACA Adjuster Adjustment, on ThinkAdvisor.

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