CMS has announced that the agency will halt payments to health plans under the Affordable Care Act’s risk adjustment program, pending a current court case in New Mexico District Court. The agency was scheduled to disburse $10.4 billion in payments to plans for the 2017 benefit year in the fall. The Saturday afternoon announcement drew immediate criticism from the health insurance industry, which stated that the uncertainty is likely to lead to increased premiums for 2019, driving up costs for individuals, employers, and the federal government through premium subsidies. The announcement means that for 2017 (and presumably beyond), plans on the individual and small-group markets will not have the benefit of any type of federal market stabilization programs to reduce risk.
The ACA included three different programs intended to help stabilize the individual and small-group markets: risk adjustment, risk corridors, and reinsurance. The risk adjustment program, which is a permanent feature, works by requiring health plans that attracted a generally healthier population, and thus had lower-than-expected costs to contribute towards a fund that would then be redistributed to health plans that had a generally sicker population and higher-than-expected costs. The risk corridor and reinsurance program, which were only in effect for the 2014 – 2016 plan years, were designed to have the Federal government share risk in both losses and gains at the individual plan level and ensure market stability (and thereby reducing premiums), respectively. Other private-public programs operated by CMS, including the Medicare Advantage and Medicare Part D benefits, use risk adjustment, risk corridors, and reinsurance as permanent features of the program.
The court case cited by CMS as the reason for the halt concerns the methodology used to determine the risk adjustment payments. The lawsuit was filed by Consumer Oriented and Operated Plans (co-op) that were created under the ACA as a competitor to traditional commercial plans. Many co-op plans struggled to remain financially solvent and most folded within the first several years of the Marketplace. Two surviving co-op plans, one in New Mexico and another in Massachusetts, filed separate lawsuits against CMS, arguing that the agency’s formula for determining the average statewide premium used to determine risk adjustment payments was unfair and resulted in the co-op plans paying money to more financially solvent insurers. The Massachusetts District Court ruled that the methodology, which was finalized via regulation in 2013, was sound. On June 21, 2018, the New Mexico District Court ruled that the methodology was “arbitrary and capricious.” CMS used this recent ruling as the basis for halting the payments, but noted that the agency was continuing to pursue to court case.
CMS did not include any additional details with the statement, but Saturday’s statement said that the agency intended to release the final 2017 Benefit Year Risk Adjustment Summary Report soon.