The legal squabble between the Centers for Medicare & Medicaid Services and the New Mexico Health Connections over risk adjustment payments continues. The insurer on Monday filed a second lawsuit to block the federal agency from implementing its formula for calculating risk adjustment payments.
Despite ongoing legal challenges, the Centers for Medicare & Medicaid Services (CMS) intends to move ahead with plans to restore risk adjustment payments to health insurance plans for the 2018 plan year.
The agency issued a proposed rule on August 8 to adopt risk adjustment methodology that the Department of Health & Human Services (HHS) previously set for the 2018 benefit year, using the statewide average premium in the payment transfer formula.
The move, a technical clarification, is in response to a February decision by the U.S. District Court of the District of New Mexico to vacate the use of statewide average premium in the federal-operated risk adjustment methodology for the 2014-2018 benefit years. The court’s decision was a partial victory for New Mexico Health Connections, a consumer operated and oriented (cooperative) health plan, which claimed in its 2016 lawsuit that the way the federal government implemented the risk adjustment program “brutally penalizes new, innovative, low-cost insurance companies and flouts Congress’ intent in enacting the ACA.”
CMS takes actions to stabilize the market
Although the government has requested the court reconsider the decision and is awaiting the court’s ruling, federal officials said the new proposed rule explains their justification for using the statewide average premium to calculate risk adjustment transfers and expands on the reasoning behind their decision to operate the risk adjustment program in a budget-neutral manner.
Risk adjustment is meant to compensate insurers in the individual and small group markets who have sicker enrollees and therefore have higher medical costs. The program is considered crucial to level the playing field in the market and reduce incentives for insurers to avoid enrolling sicker members with chronic conditions and pre-existing conditions. By following a risk adjustment formula, the insurers shouldn’t fail or succeed based on the favorability of attracting sick or healthy members. Instead, they should be able to compete based on price, efficiency, and service quality.
However, the importance of risk adjustment payments didn’t stop CMS officials from suspending more than $10 billion in payments for the 2017 benefit year to insurers in early July, a move they claimed was necessary due to the pending litigation.
Under pressure from lawmakers, community groups, insurers, and regulators, the agency reversed its stance a few weeks later and reinstated the payments and the same formula in a final rule amid concern that insurers would have to withdraw from markets without the payments. But that emergency final rule is also a technical clarification and only allowed the program to continue for the 2017 benefit year. The proposed rule issued last week would allow the program to continue for the 2018 benefit year.
The proposed rule will allow CMS officials to help stabilize the individual and small group markets, CMS Administrator Seema Verma said in a statement. “Our goal has been, and will continue to be, to stabilize the market and provide American consumers with more affordable health coverage options,” she said.
NOTE: CMS will accept comment on the proposed rule through 5 p.m., Friday, September 7.
New Mexico Health Connections strikes back (again)
But the New Mexico Health Connections on Monday filed a second lawsuit, challenging the decision by CMS to issue an emergency regulation for the risk adjustment program for 2017. It also filed an immediate motion for a summary judgment asking the court to take expedited action to strike down the emergency rule, claiming that the HHS violated the Administrative Procedure Act by rolling out the technical clarification for the 2017 benefit year without a period for public comment.
“We want to ensure that HHS follows the legal process as outlined in the Administrative Procedure Act,” Marlene C. Baca, CEO, New Mexico Health Connections, said in a statement. “We contend that the emergency regulation continues a risk adjustment formula that disadvantages small, new, and lower-priced health plans in favor of their larger, more expensive competitors.”
“The CMS formula does not, as it is supposed to, transfer funds equitably from health plans with healthy enrollees to health plans with sick enrollees,” she said. “We support the concept of fair and equitable risk adjustment and we will continue to fight to protect consumers and provide fair insurance rates.”
The "flawed formula" has led many small innovative health insurers to go out of business, Baca said in a statement last month. She said that out of the 23 co-op plans established under the Affordable Care Act, only four remain in business today. Several of those insurers were driven out of business because of massive risk adjustment assessments.
Under CMS’ 2017 formula, Health Connections owes millions in risk adjustment charges even though its individual insurance market enrollees were slightly sicker than the state average and its small group market enrollees were only 1% healthier than the state average. The insurer’s enormous risk adjustment bill is not because it enrolls healthier members, Baca said, but because it’s small group premiums were 22% below the state average.
Want to learn more about this topic? Join the Rise Association Nov. 11-13 for the 12th Risk Adjustment Forum: Innovative Strategies to Improve Risk Adjustment Programs for Medicare Advantage, Medicaid, and Commercial Plans