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July 25, 2018

CMS reinstates ACA's risk-adjustment payments

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    CMS on Tuesday released a final rule that the agency said reinstates billions of dollars in payments expected to be made to exchange insurers under the Affordable Care Act's (ACA) risk-adjustment program.

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    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 determined whether insurers would pay into or receive payments from the program based on an insurer's risk score, which took 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, ruling that the formula is fair. 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." The judge ruled the CMS could no longer use that formula because HHS had not adequately explained the methodology behind it.

    In response to the New Mexico ruling, CMS earlier this month announced that it was 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."

    Rule details

    CMS said its final rule "reissues, with additional explanation, the risk adjustment methodology" the agency had used to calculate exchange insurers' risk adjustment payments for the 2017 coverage year. CMS said the "final rule provides a fuller explanation supporting the 2017 risk adjustment methodology, consistent with the [New Mexico] judge's request, and allows [CMS] to resume the risk adjustment program without delay."

    Specifically, the final rule reissues the risk-adjustment methodology CMS had established for the 2017 coverage year with additional explanations regarding the agency's use of statewide average premiums to calculate risk-adjustment payments, as well as the budget neutrality of the risk-adjustment program. According to The Hill, the final rule does not make any changes to the program.

    CMS in the final rule said it expects to resume the payments around Oct. 22.

    CMS also noted that the New Mexico court "vacated" the methodology the agency intended to use to calculate exchange insurers' risk-adjustment payments for the 2018 coverage year. As such, CMS said it intends to "issue a Notice of Proposed Rulemaking … to propose and solicit comment" on how the agency should calculate 2018 risk-adjustment payments.


    CMS Administrator Seema Verma said, "This rule will restore operation of the risk adjustment program, and mitigate some of the uncertainty caused by the New Mexico litigation." She added, "Issuers that had expressed concerns about having to withdraw from markets or becoming insolvent should be assured by our actions today. Alleviating concerns in the market helps to protect consumer choices."

    According to The Hill, experts have said the pause in risk-adjustment payments likely would not have substantial long-term effects.

    Martin Hickey, founder of New Mexico Health Connections, said he was "not surprised" that CMS did not change its methodology for calculating the risk-adjustment payments. According to the New York Times, Hickey did not say how the insurer might respond to the final rule Cancryn, Politico, 7/24; Wilde Mathews, Wall Street Journal, 7/24; Pear, New York Times, 7/24; Weixel, The Hill, 7/24; CMS release, 7/24; CMS final rule, 7/24).

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