Risk adjustment is one of three methods built into the 2010 health-care law to help insulate insurance companies from the ACA requirement that they accept all customers for the first time — healthy and sick — without charging more to those who need substantial care.
The other two methods were temporary, but risk adjustment is permanent. Federal health officials are required each year to calculate which insurers with relatively low-cost consumers must chip in to a fund, and which ones with more expensive customers are owed money. This idea of pooling risk has had significant practical effects: encouraging insurers to participate in the insurance marketplaces the ACA created for Americans who cannot get affordable health benefits through a job.
Scenes from Trump’s second year in office
In its announcement, CMS said that it is not going to make $10.4 billion in payments that are due to insurers in the fall for expenses incurred by insurers last year.
CMS, a branch of the Department of Health and Human Services that oversees much of the law, is supposed to issue an annual report on the program but has not released a report due late last month.
The suspension of these payments is the most recent maneuver by the Trump administration to undercut the health-care law that President Trump has vowed since his campaign to demolish. A Republican-led Congress last year failed to repeal much of the ACA. The administration has been taking steps to dismantle it through executive powers.
Last year, health officials halved the length of the annual sign-up period for Americans to buy ACA health plans and also slashed by 90 percent the federal funds for advertising and other outreach efforts to urge people to enroll. Last October, the president ended another important subsidy to insurers: cost-sharing reduction payments, which cushioned them from the law’s requirement to provide discounts on deductibles and other out-of-pocket costs to low-income customers.
This year, the Department of Labor and HHS have worked to make it easier for people and small companies to buy two types of insurance policies that sidestep benefits required under the ACA and some of the law’s consumer protections.
The five-paragraph statement plus a timeline issued on Saturday justified the latest maneuver by tying it to a legal dispute over the fairness of the risk-adjustment formula. The dispute goes back about three years to a new type of nonprofit insurer, known as Consumer Oriented and Operated Plans (co-ops), created by the ACA as alternatives to traditional insurance companies. Most of the co-ops found themselves in such fragile financial condition that they closed, and a few that have survived sued the government, alleging they were unfairly making contributions into the risk-adjustment fund while larger, better-established insurers were receiving payments.
In two cases, federal district judges in Massachusetts and New Mexico reached opposite conclusions. The Massachusetts judge found the HHS formula fair, but the one in New Mexico ruled that it was “arbitrary and capricious.” Federal health officials are asking that the New Mexico ruling be reconsidered.
The announcement says that “ruling prevents CMS from making further collections or payments under the risk adjustment program.” CMS Administrator Seema Verma said in a statement: “As a result of this litigation, billions of dollars in risk adjustment payments and collections are now on hold.”
Two major insurers’ trade groups immediately decried the move.
“Risk adjustment is a mandatory program under federal law,” said Scott Serota, president of the Blue Cross Blue Shield Association. “Without a quick resolution . . . this action will significantly increase 2019 premiums for millions of individuals and small business owners. . . . It will undermine Americans’ access to affordable coverage, particularly for those who need medical care the most.”
Matt Eyles, president of America’s Health Insurance Plans, noted in a statement that the timing of this latest move could be particularly disruptive, because this is the season during which insurers around the country decide whether to take part in ACA marketplaces for 2019 and, if so, what rates to charge. “This decision . . . will create more market uncertainty and increase premiums for many health plans,” Eyles said.