|Trump Administration to Resume ACA Risk-Adjustment Payments|
CMS issued a final rule to resume risk-adjustment payments to insurance companies with plans on the individual market this week. The agency will now disburse $10 billion in 2017 risk-adjustment payments. CMS had halted payments for 2017 several weeks ago, citing a federal judge’s ruling in New Mexico Health Connections v. United States Department of Health and Human Services et al earlier this year. U.S. District Judge James Browning concluded that HHS did not adequately explain its decision to adopt a payment methodology that used the statewide average premium as the cost-scaling factor and that it needed to do so via rulemaking to ensure that the methodology was indeed budget neutral. To comply with this initial outcome in the New Mexico lawsuit, the new final rule issued by CMS on July 24 expands upon the reason behind the payment methodology. Ultimately, the agency reiterated that its algorithm was appropriate. The final rule explains that “HHS chose to use statewide average premium and normalize the risk adjustment transfer formula to reflect state average factors so that each plan’s enrollment characteristics are compared to the state average and the total calculated payment amounts equal total calculated charges in each state market risk pool. Thus, each plan in the risk pool receives a risk adjustment payment or charge designed to compensate for risk for a plan with average risk in a budget neutral manner.”
CMS calculates payments for the program using a statewide average premium to provide budget neutral payments and to spread the cost of covering high-risk enrollees. In addition, the risk-adjustment program is designed to reduce the chance insurance companies will engage in adverse selection to attract healthier enrollees. This is done by financially rewarding participating insurers who do not avoid high-risk beneficiaries with higher medical loss ratios (MLRs). The agency concluded that rulemaking would allow for the continued operation of the risk-adjustment program which is imperative to maintain stability in the individual and small group health insurance markets.
The final rule explains insurers will receive invoices between September 11-13, 2018 and payments will begin to be sent out around October 22, 2018. This will come as welcome news to insurers that were about to lose significant amounts of money. A summary report of the 2017 risk-adjustment program shows that insurers in the individual market would have missed out on $7 billion in payments without the program, while small group plans would have lost close to $2 billion. "Issuers that had expressed concerns about having to withdraw from markets or becoming insolvent should be assured by our actions today," CMS Administrator Seema Verma said. The continuation of the risk-adjustment program will clear up some uncertainty for insurers who are looking to stabilize their costs and spending for the current year.
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