Federal Suspension of Risk Adjustment Payments Delivers Another Hit to State Exchanges

stethescope insurance bill
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The latest challenge to the Affordable Care Act (ACA) and the stability of states’ individual markets came on July 7, 2018, when the Centers for Medicare & Medicaid Services (CMS) announced it would stop issuing risk adjustment payments pending the outcome of a challenge to the ACA program in the US District Court in New Mexico.

Risk adjustment programs historically stabilize insurance markets by requiring the transfer of funds from carriers that cover lower-risk, healthy enrollees to carriers that have higher-risk enrollees – including those with pre-existing medical conditions – essentially forcing insurers to share the risk in order to stabilize the market. This risk adjustment approach is used by Medicare and Medicaid programs.

In the case of ACA state markets, it reduces the incentive for insurers to steer sick applicants to state exchanges and instead only sell to “healthier” applicants, which helps balance risk in state insurance markets by protecting consumers from rate spikes that result when a risk pool is unhealthy.

Ten state-based marketplaces (SBMs), reacted quickly to the announcement and sent a letter to US Department of Health and Human Services Secretary Alex Azar and CMS Administrator Seema Verma, asking them to vigorously defend the ACA’s successful risk adjustment program in court.

The SBM executives raised concerns that the action to suspend risk adjustment payments could create uncertainty in state insurance markets, especially now that insurers are in the midst of developing premium rates for 2019, potentially affecting rates and insurer participation for 2019.

Last week, CMS issued updated guidance and expanded on its decision about the risk adjustment program. The guidance clarified that the court’s and its own decision to suspend risk adjustment payments applied only to the 2014-2018 benefit years and should not impact insurance payments for 2019.

In their letter, the SBM directors had argued that the court’s decision should apply only to earlier years of ACA. “It is important to note that the decision by the New Mexico District Court does not apply to the upcoming 2019 benefit year,” they pointed out. “The court’s order is narrow. It invalidated the use of statewide average premiums in the risk adjustment methodology simply because the US Department of Health and Human Services’ (HHS) justification for the policy – budget neutrality – was not set forth in the regulations. HHS addressed this concern in (its) final Benefit and Payment Parameters rule for 2019 by including specific language justifying why the risk adjustment program must be budget neutral. As such, CMS is not barred from making further collections or payments under the risk adjustment program for 2019.”