Health Reform WK-EDGE CMS reissues, with additional analysis, the methodology for the ACA risk adjustment program
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Monday, August 6, 2018

CMS reissues, with additional analysis, the methodology for the ACA risk adjustment program

By Harold Bishop, J.D.

CMS has posted a Final rule reestablishing, with a fuller explanation, the risk adjustment program methodology previously established for transfers of amounts collected from insurers of low-risk populations to insurers of relatively high-risk populations for the 2017 benefit year. The risk adjustment program, required under §1343 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) was designed to stabilize the health insurance markets. The Final rule addresses the problem created on February 28, 2018 when the U.S. District Court for the District of New Mexico invalidated CMS’ use of the statewide average premium in the risk adjustment transfer formula established under the ACA for the 2014–2018 benefit years (see Risk adjustment regs don’t require budget neutrality, March 7, 2018) (Final rule, 83 FR 36456, July 30, 2018).

New Mexico Health Connections, the plaintiff in the case, claimed the risk adjustment formula used by CMS was biased in favor of large, established insurers and discriminated against smaller insurers, like itself. The district court found that CMS had not adequately explained its decision to adopt a methodology that used the statewide average premium as the cost-scaling factor to ensure that amounts collected from issuers equal payments made to issuers for the applicable benefit year, that is, a methodology that maintains the budget neutrality of the program for the applicable benefit year.

The court’s ruling barred CMS from collecting or making payments under the current methodology, which uses the statewide average premium. In light of the court’s ruling, CMS announced that it would suspend the risk adjustment program (see CMS puts risk adjustment payments on hold awaiting resolution of litigation, July 11, 2018). In addition, CMS’ Center for Consumer Information & Insurance Oversight (CCIIO) issued guidance to address the implications of the court ruling (CCIOImplications of the Decision by United States District Court for the District of New Mexico on the Risk Adjustment and Related Programs, July 12, 2018) (see Guidance addresses CMS actions related to court’s invalidation of the risk adjustment program, July 18, 2018).

CMS had filed a reconsideration motion with the district court. However, in a June 21, 2018 hearing, the court suggested that a final decision on the reconsideration motion would not come until Labor Day. It thus became clear that the matter would not be resolved in time for CMS to make scheduled risk adjustment payments and collections in August. This circumstance provided good cause for CMS dispense with the typical notice and comment period and issue a Final rule providing a fuller explanation supporting the 2017 risk adjustment methodology, consistent with the court’s request, and allowing CMS to resume the risk adjustment program without delay.

In announcing the Final rule, CMS Administrator, Seema Verma, stated "[t]his rule will restore operation of the risk adjustment program, and mitigate some of the uncertainty caused by the New Mexico litigation. Issuers that had expressed concerns about having to withdraw from markets or becoming insolvent should be assured by our actions today. Alleviating concerns in the market helps to protect consumer choices."

Under the Final rule, CMS will begin collection of the 2017 benefit year risk adjustment charge amounts announced in the Summary Report on Permanent Risk Adjustment Transfers for the 2017 Benefit Year through netting pursuant to 45 C.F.R. 156.1215(b) and subsequently issuing invoices if an amount remains outstanding in the September 2018 monthly payment cycle. CMS will begin making the 2017 benefit year risk adjustment payments outlined in the Summary Report as part of the October 2018 monthly payment cycle, continuing on a monthly basis as collections are received. Under this timeline, issuers would receive invoices on or about September 11-13, and 2018 and payments would begin to be made around October 22, 2018.

Companies: New Mexico Health Connections; U.S. Department of Health and Human Services; Center for Medicare and Medicaid Services

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