December 10, 2018

CMS finalizes methodology to calculate exchange insurers' 2018 risk-adjustment payments

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    CMS on Friday finalized a rule outlining how the agency intends to calculate risk-adjustment payments to exchange insurers for the 2018 coverage year.

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    Background

    The risk-adjustment program is a permanent program created under the Affordable Care Act 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 previously 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.

    However, CMS had to vacate that methodology for the 2018 coverage year after a federal judge in the U.S. District Court of New Mexico ruled that the payment formula was flawed. The judge ruled 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 released a final rule "with additional explanation" of the formula to reinstate the payments for 2017.

    In August, the agency proposed a rule on how it would calculate 2018 risk adjustment payments. CMS said it would "adopt the risk adjustment methodology that HHS previously established for the 2018 benefit year which uses the statewide average premium in the payment transfer formula." CMS said, "This proposed rule further explains the justification for utilizing statewide average premium in the calculation of risk adjustment transfers, and expands on the reasoning behind operating the HHS-operated risk adjustment program in a budget-neutral manner."

    CMS finalizes rule for 2018 risk-adjustment payments

    CMS on Friday said it has finalized its rule for 2018 risk-adjustment payments. The final rule includes no significant changes from when the agency proposed the rule in August.

    CMS said finalizing the rule "allows [the agency] to continue normal operations of the risk-adjustment program for the 2018 benefit year after a federal judge vacated the use of statewide average premium under the HHS methodology earlier this year."

    CMS said it expects to pay a total of $4.8 billion in risk adjustment payments to exchange insurers for the 2018 coverage year under the final rule.

    Reaction

    Kris Haltmeyer, vice president of legislative and regulatory policy for the Blue Cross Blue Shield Association, said, "We are pleased to see CMS issue this final rule to keep the risk-adjustment program in place for the 2018 benefit year, ensuring stability in health care coverage for millions of Americans." Haltmeyer continued, "This important program has worked for years to balance the cost of care between healthy Americans and those with significant medical needs and, as CMS has stated, is working as intended."

    However, Katie Keith, a health care expert at Georgetown University's Center on Health Insurance Reforms, said it is unclear how the District Court of New Mexico will respond to the final rule. Keith explained that CMS had asked the court to reconsider its ruling after the agency released the proposed rule in August, but the court denied the agency's request. Keith said, "There is a question for me if [the judge] is going to accept this rationale. I don't know how the court is going to view it" (Haefner, Becker's Hospital Review, 12/7; Livingston, Modern Healthcare, 12/7; Porter, HealthLeaders Media, 12/7; Cohen, Inside Health Policy, 12/7 [subscription required]; Lotven, Inside Health Policy, 10/23 [subscription required]; CMS release, 12/7).

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