Citing conflicting federal court decisions on the program, the CMS said it cannot collect or disburse funds under the risk-adjustment program. The program was slated to shift $10.4 billion among insurers in 2017, according to the agency.
The permanent program was meant to reduce the incentive for health insurers to cherry-pick healthy members. It shuffles money from plans with healthier-than-average members to those with larger numbers of sicker, higher-cost members. The program is based on a patient’s risk score, which is determined by a person’s demographic information and health condition.
But U.S. District Judge James Browning of New Mexico ruled in February that HHS couldn’t use statewide average premiums to come up with its risk-adjustment formula because the agency wrongly assumed the ACA required the program to be budget-neutral.
“CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets,” CMS Administrator Seema Verma said in a July 7 statement.
America’s Health Insurance Plans said it was “very discouraged” by the CMS’ decision, which comes as insurers determine their premiums for 2019 and states review those proposals.
“The decision will have serious consequences for millions of consumers who get their coverage through small businesses or buy coverage on their own,” the group said. “It will create more market uncertainty and increase premiums for many health plans—putting a heavier burden on small businesses and consumers, and reducing coverage options. And costs for taxpayers will rise as the federal government spends more on premium subsidies.”
The risk-adjustment program has been a source of frustration for small insurers and ACA co-ops that claim the formula makes their membership bases look healthier than they are. One reason could be that newer insurers have limited information on their members’ health status and claims history. Legacy insurers that have a wealth of patient data may have a leg up on coding. Small health plans also have far less capital than more established insurers to comfortably make large risk-adjustment payments.
The CMS has asked Judge Browning to reconsider his ruling and is awaiting a decision. The agency said it will release additional guidance for insurers on issues related to the risk-adjustment program, including appeals and how this will affect medical loss ratios.