CMS puts risk adjustment payments on hold awaiting resolution of litigation

A ruling issued by the U.S District Court for the District of New Mexico invalidating CMS’ use of the statewide average premium in the risk adjustment transfer formula established under Sec. 1343 of the Patient Protection and Affordable Care Act (ACA) for the 2014 to 2018 benefit years, prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year until the litigation is resolved. In light of the current status of litigation, CMS will not collect or pay the specified amounts. In addition, it will inform stakeholders of updates to the status of collections or payments in the future as appropriate, CMS announced. In light of a contrary decision, the government moved the New Mexico district court to reconsider its decision. On June 21, 2018, a hearing was held on CMS’s motion for reconsideration. CMS is currently awaiting the court’s ruling.

Risk-adjustment methodology. This aspect of the risk adjustment methodology was promulgated as part of a regulation first issued by the Obama Administration on March 11, 2013 (78 FR 15410). CMS finalized a risk adjustment methodology for states where HHS operates the program that includes the use of the statewide average premium to maintain a budget neutral program. The calculated risk adjustment transfer amounts for the 2017 benefit year are $10.4 billion, which includes transfers across catastrophic, small group, and individual noncatastrophic risk pools. CMS explained that the risk adjustment program is intended to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, and reduce the incentives for issuers to avoid higher-risk enrollees. Under this program, funds are transferred from issuers with lower-risk enrollees to issuers with higher-risk enrollees.

The rulings. The U.S District Court for the District of New Mexico’s decision, issued on February 28, 2018, invalidated CMS’ use of the statewide average premium in the risk adjustment transfer formula for the 2014 to 2018 benefit years pending further explanation of CMS’ reasons for operating the program in a budget neutral manner in those years. The complaint brought by New Mexico Health Connections contended that CMS’ use of the statewide average premium was arbitrary and capricious. The court agreed that the regulations were arbitrary and capricious and the methodology for calculating those charges needed to be revisited.

In a similar case, Minuteman Health, Inc. v. HHS, the U.S. District Court for the District of Massachusetts found that CMS acted within its authority in promulgating the HHS-operated risk adjustment methodology based on the statewide average premium. HHS’ use of a statewide average premium methodology to implement the risk-adjustment program was neither unreasonable nor arbitrary and capricious. The regulations did not violate the Administrative Procedure Act, nor did they contravene the statute providing for risk adjustment (42 U.S.C. §18063) even though they resulted in a provider paying 71 percent of its gross revenues into the program causing the company to go into receivership.

CMS actions. CMS issued the Final 2017 Benefit Year Risk Adjustment Summary Report and accompanying issuer transfer reports on July 9, 2018. The report reflects the final estimated results of the risk adjustment program for the fourth year the program has been operating. CMS will provide additional guidance shortly on how it will handle other issues relating to risk adjustment payments, including EDGE server data collection operations, appeals of 2017 risk adjustment amounts, and how issuers should treat risk adjustment amounts in the calculation of medical loss ratios.

SOURCE: CMS press release, July 7, 2018.
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