Yesterday, CMS issued a press release indicating that they would not be able to finalize approximately $10.4 billion in risk adjustment transfer payments due insurers selling plans on the ACA’s individual and small group markets. The obstacle is a New Mexico US District Court’s decision to vacate CMS’s rules for calculating the risk adjustment payments, which are generally finalized in June, thus rendering the associated math invalid.
CMS’s announcement ignited the health care policy wonk-a-sphere, whose guardians include former Obama officials and denizens of the gazillion think tanks in Washington, which decried the move as another effort to destroy the ACA. Topher Spiro at the Center for American Progress declared a SABOTAGE ALERT in Twitter. Former CMS Administrator Andy Slavitt, whose office wrote the rules now being contested, accused the Trump administration of killing the ACA.
The reality is quite a bit more benign.
The judge’s decision is not new. It was issued in February. In his order, Judge James Browning vacated – essentially nullified - CMS rules that required risk adjustment payments to be made using a state’s average premium as the baseline. CMS adopted this approach in order to achieve budget neutrality and predictability. The judge determined that CMS had not provided adequate justification for the methodology in its rulemaking and so ordered it capricious and arbitrary.
However, the Trump administration filed a motion to reconsider and a hearing was held on June 21. Based on their brief requesting reconsideration (the transcript is not yet available), CMS argued that vacating the rules that govern the risk adjustment program would cause harmful delays in finalizing the payments. Instead, they ask the court to simply remand the issue back to CMS so they have the opportunity to clarify through rules why the calculations are done on a budget neutral basis using state-wide premium averages.
Should the court agree to reconsider its decision – a very unlikely scenario – then the issue will resolve itself quickly. If the court does not agree, the fix is also straightforward. CMS could issue new rules setting out its justification for the budget neutral policy and inviting comment. That process could take 45 to 60 days.
In the meantime, HHS has a judge’s order saying the rules they use to calculate the risk adjustment payments is invalid. That order calls into question all payments made for 2014 through 2016 and those being calculated for 2017 and 2018. Complicating matters is that a Massachusetts judge reached an entirely different conclusion in January and upheld the risk adjustment calculation.
What does it mean?
Risk adjustment payments are not material to behemoth insurers like UNH. CMS has not released 2017 issuer specific data. The 2016 data demonstrate that the larger insurers made about $415 million in risk adjustment payments in the individual market and $107 million in the small group market.
The delay in making risk adjustment payments could, however, be quite material to a small, local or regional insurer. Blue Cross and Blue Shield of Tennessee, for example, received $40 million in risk adjustment payments in 2016.
The impact of the delayed payments makes the point of the New Mexico lawsuit where New Mexico Health Connections, a small, not-for-profit CO-OP, sued because they felt the risk adjustment program favored large, state-wide insurers like the Blues and the publicly traded carriers.
The court did not side NMHC – except for the easily corrected vacatur and remand – on most of the complaint so the bias the risk adjustment process has toward large insurers is not likely to change.
Call with questions.
Emily Evans
Managing Director
Health Policy
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