Land of Lincoln Mutual Health Insurance Company v. United States
129 Fed. Cl. 81
Fed. Cl.
2016

Background

  • Land of Lincoln Mutual (Lincoln) sold ACA qualified health plans on the Illinois federally-facilitated Exchange for 2014–2016 and incurred large losses in 2014 and 2015, making it eligible for payments under the ACA risk-corridors program (42 U.S.C. § 18062; 45 C.F.R. § 153.510).
  • HHS paid Lincoln only 12.6% of its 2014 risk-corridors entitlement and none for 2015, adopting a budget-neutral, three-year approach allocating collected "payments in" pro rata to "payments out."
  • Congress did not include an explicit, dedicated appropriation for §1342 payments; appropriations riders for FY2015–2016 restricted HHS from using certain general CMS funds for risk-corridors payments.
  • Lincoln sued in the Court of Federal Claims for (Count I) statutory/regulatory entitlement to full annual payments; (Counts II–III) breach of express and implied-in-fact contract; (Count IV) breach of implied covenant; and (Count V) a Fifth Amendment taking, seeking roughly $75.8 million.
  • The court found it had Tucker Act jurisdiction over the money-damage claims but dismissed Lincoln’s demand for declaratory relief. After Chevron analysis, the court granted the government judgment on the administrative record for Count I and dismissed Counts II–V for failure to state contract or takings claims.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether §1342 and implementing regs create a money-mandating, annual, full-payment obligation §1342's "shall pay" and year-by-year reporting create an unambiguous right to full annual payments Statute is silent on timing and funding; Congress did not appropriate funds; HHS reasonably implements a three-year budget-neutral scheme Court: §1342 is money‑mandating (jurisdiction), but ambiguous on timing/funding; agency’s three‑year budget‑neutral interpretation is reasonable — gov't judgment on Count I granted
Whether Chevron deference applies to HHS interpretation of §1342 Deference inappropriate (post-hoc/equitable expectations; King v. Burwell concerns) HHS promulgated rules and guidance before litigation; interpretation is within agency expertise and entitled to Chevron deference Court: Chevron applies; HHS’s interpretation is reasonable and entitled to deference
Whether Lincoln alleged a valid express contract with HHS to guarantee annual full risk‑corridor payments Certification agreements and references to federal law/user fees created express contractual payment obligations Agreements are operational (IT/data services) and do not expressly incorporate §1342 or promise payments; no clear offer/acceptance to pay risk‑corridor amounts Court: No valid express contract — Count II dismissed
Whether an implied‑in‑fact contract or breach of implied covenant exists HHS’s statutory/regulatory scheme and conduct constituted an offer accepted by performance (participation), so an implied contract and related implied covenant arose Statute/regulations do not evince intent to contract; essential elements (mutual intent, clear offer/acceptance) lacking; any contractual obligations would be defined/limited by agency rules Court: No implied‑in‑fact contract; implied covenant claim dependent on contract fails — Counts III & IV dismissed
Whether HHS’s payment approach amounted to a taking under the Fifth Amendment Failure to pay full annual amounts effectively took Lincoln’s property without just compensation Right to full annual payments is not a recognized proprietary interest; no valid contract-based property right Court: No cognizable property interest in full annual payments; takings claim dismissed (Count V)

Key Cases Cited

  • Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (defers to reasonable agency interpretation of ambiguous statute)
  • King v. Burwell, 135 S. Ct. 2480 (Supreme Court limited deference in extraordinary ACA context)
  • United States v. Mitchell, 463 U.S. 206 (Tucker Act jurisdiction and separate money‑mandating source requirement)
  • Testan v. United States, 424 U.S. 392 (Tucker Act does not create substantive rights)
  • White Mountain Apache Tribe v. United States, 537 U.S. 465 (statute is money‑mandating if reasonably amenable to a money‑mandating construction)
  • Franconia Associates v. United States, 536 U.S. 129 (anticipatory repudiation ripens into breach; treat repudiation as present breach)
  • Auer v. Robbins, 519 U.S. 452 (agency interpretations of its regulations accorded deference)
  • Todd v. United States, 386 F.3d 1091 (Federal Circuit on "presently due" requirement for Tucker Act claims)
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