A nonprofit health-care cooperative in Maryland is suing the federal government to avoid paying tens of millions of dollars to a larger insurer under what the group described as a “dangerously flawed” program of the Affordable Care Act.
Evergreen Health on Monday filed a lawsuit in U.S. District Court in Maryland claiming that the Centers for Medicare and Medicaid Services (CMS) has unfairly required it to fork over $22 million to CareFirst, a Blue Cross and Blue Shield affiliate operating in the Mid-Atlantic region.
Peter Beilenson, chief executive of the 40,000-member co-op, said in a statement Monday that the system is providing “a financial boon for the country’s largest and most established health insurers, at the expense of new, innovative insurers.” He added that the cost would eat up 26 percent of Evergreen’s 2015 revenue from premiums.
CMS declined to comment on pending litigation.
Evergreen is required to make the payment under CMS’s “risk adjustment” program, an element of President Obama’s 2010 health-care overhaul that aims to provide financial protection for organizations that participate in the new health-care exchanges and end up with sicker, more expensive customers because of a rule that prohibits them from denying coverage for preexisting conditions. Under the system, insurers with healthier patients pay those with sicker customers.
But the current method for calculating risk does not provide an accurate picture of an enrollee’s health status, partly because many customers sign up for plans late in the year and don’t visit a doctor before the determination period ends. CMS counts those individuals as low-risk, even if they are not.
The agency seemed to acknowledge a problem with the system last week, when it announced changes that will take place over the next two years to reflect the cost of “partial-year enrollees,” including allowing insurers to use prescription-drug information to determine risk levels — since such customers are more likely to need a pharmacist than a doctor in the short time they have been with the insurer.
“They’re taking the right steps, but they’re just not doing it quickly enough,” Evergreen spokesman Matt Jablow said of CMS.
Evergreen has asked the court for an injunction that would free the group from its risk-adjustment payments until the new guidelines take effect.
Architects of the Affordable Care Act envisioned nonprofit health insurers as a consumer-friendly alternative to for-profit plans, saying they would increase competition in a market typically dominated by large commercial carriers.
The federal government dedicated billions of dollars in loans to the nonprofits, but several have experienced financial troubles, and CMS told nearly half of them by 2015 that they risked losing their loans. Some have gone out of business, including Health Republic Insurance of New York and the Nevada Health Co-Op. The latter was initially among a group of carriers that federal officials cited as best positioned to succeed.
Supporters of the nonprofit model say shuttering the co-ops will decrease competition and probably lead to higher rates in states where the closures occur.
Evergreen believes more co-ops could perish if CMS doesn’t revise its risk-adjustment method sooner.
“Risk adjustment was designed to stabilize the health insurance markets in the states but, in fact, CMS’s implementation of the program has done just the opposite,” Beilenson said. “If the system isn’t changed in the immediate future, many of the country’s most innovative and most affordable health insurance companies could very well go out of business.”