A Department of Health and Human Services (HHS) memo signaled an openness to using federal funds earmarked for court settlements to bailout health insurance companies struggling under Obamacare.

This “sue and settle” approach may be the White House’s best shot at circumventing Congress to keep struggling insurers stable.

At issue is Obamacare’s risk corridor program, which is designed to insulate insurers against extreme losses. Insurance companies have struggled to accommodate the burgeoning number of previously uninsured on their benefit rolls — recall that insurers are now legally required to cover them. As a hedge against significant losses, HHS collects payments from companies with minimal losses and pays that money out to companies with significant losses. The program itself has struggled to keep insurers stable, as it has not generated enough money to pay out all of its obligations.

In fiscal year 2014, HHS collected $362 million in payments, against $2.87 billion in losses. The program has spurred a flurry of litigation of healthcare providers.

Obamacare’s coverage regime is therefore, for the moment, precarious. The Washington Examiner’s Philip Klein notes, “As Obama prepares to leave office, he faces the prospect of a mass exodus of insurers from Obamacare, which could unravel his signature legislation. So the administration is desperate to keep insurers in the system.”

The administration’s problem is exacerbated by the fact that Congress has taken a number of steps to ensure that the risk corridor program is budget neutral. HHS seems to believe it has found a way around those barriers. The department issued this guidance: “We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”

In other words, HHS seems to be signaling that it will ferry the balance (or at least a portion of) the risk corridor payments through individual settlements with the health insurers currently suing the federal government.

Houston College of Law professor Josh Blackman predicted such a “sue and settle slush fund” strategy would emerge when Blue Cross Blue Shield of North Carolina brought a risk corridor lawsuit against the federal government in June.

“If the Court of Federal Claims (an Article I court) rules in favor of the insurance companies, and awards them the hundreds of millions of dollars they seek, those amounts would come out of the judgment fund,” he wrote. “This is a permanently appropriated fund that, for all intents and purposes, is unlimited. In other words, even if Congress expressly deprives the Executive of funding for the risk corridors, if the insurance companies receive a favorable court ruling, the government can pay out that amount through the judgment fund.”

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