The winners and losers in CMS' risk-adjustment payment freeze, charted

CMS' decision to freeze billions of dollars in payments under the Affordable Care Act's (ACA) risk-adjustment program could benefit some exchange insurers and disadvantage others. 

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Background

The risk-adjustment program is a permanent program created under the ACA that redistributes funds from exchange insurers with lower-risk enrollees to those with higher-risk enrollees in an effort to encourage insurers to enroll a balance of healthy and sick consumers. CMS determines whether insurers will pay into or receive payments from the program based on an insurer's risk score, which takes into account enrollees' demographics and health conditions, as well as how the company performed in the past, which could indicate how much risk the insurer has taken on.

But Minuteman Health of Massachusetts and New Mexico Health Connections, cooperative health plans (co-ops) created under the ACA, in 2016 filed lawsuits challenging CMS' risk adjustment payment formula. In January, a federal judge in the U.S. District Court of Massachusetts upheld CMS' risk adjustment payment formula. However, a federal judge in the U.S. District Court of New Mexico in February ruled that CMS' risk adjustment payment formula was flawed, calling it "arbitrary and capricious."

In response to the New Mexico ruling, CMS on Saturday announced that it is freezing a total of $10.4 billion in risk-adjustment payments that were expected to be made to exchange insurers for the 2017 coverage year. CMS in a release said, "The New Mexico district court's ruling currently bars CMS from collecting or making [risk-adjustment] payments under the current methodology, which uses the statewide average premium."

Payment freeze could benefit some insurers, harm others

According to Axios' "Vitals," the payment freeze could benefit exchanges insurers that would have been required to pay into the risk-adjustment program and hurt insurers that would have received funds from the program.

The 10 insurers that would have been required to pay the most into the risk-adjustment program for the 2017 coverage year would see the largest direct benefits if CMS does not require them to make the payments, "Vitals" reports.

Conversely, the 10 insurers that would have received the most in payments from the risk-adjustment program for the 2017 coverage year could be harmed the most by the payment freeze, because they could lose out on millions of dollars in funding they had expected to get from the risk-adjustment program, "Vitals" reports.

Analysts have said Blue Cross and Blue Shield-branded health plans, which have benefited the most from receiving risk-adjustment payments, are expected see the highest immediate losses, Modern Healthcare reports.

CMS unlikely to cancel payments

However, "Vitals" reports that it is unlikely the federal government will completely cancel the $10.4 million in pending risk-adjustment funds, though it is unclear when the agency might reinstate the payments.

Greg Fann, a consulting actuary at Axene Health Partners and a fellow at the Society of Actuaries, called on the Trump administration to provide more information to insurers. Fann said, "I have been in the insurance industry for a long time, and I think that these catastrophic projections are overblown." He continued, "I think it is very unlikely we go into 2019 with tremendous uncertainty in how risk adjustment gets applied. It won't get worked out this week. But I think and I hope that the final rates reflect the methodology" (Luthi, Modern Healthcare, 7/9; Baker, "Vitals," Axios, 7/10; Haefner, Becker's Hospital Review, 7/9).

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