Health Reform WK-EDGE With a twist; ACA risk adjustment program for 2018 benefit year
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Friday, August 17, 2018

With a twist; ACA risk adjustment program for 2018 benefit year

By Anthony H. Nguyen, J.D.

The risk adjustment methodology that HHS previously established for the 2018 benefit year would be adopted, after a district court vacated the use of statewide average premium in the HHS-operated risk adjustment methodology for the 2014 through 2018 benefit years. On July 30, 2018, HHS published a Final rule (83 FR 36456), that adopted the 2017 benefit year risk adjustment as described in Final rules issued March 23, 2012, (77 FR 17220) and March 8, 2016, (81 FR 12204). The current Proposed rule would adopt the same HHS-operated risk adjustment methodology for the 2018 benefit year with an additional explanation regarding the use of statewide average premium and the budget neutral nature of the risk adjustment program (Proposed rule, 83 FR 39644, August 10, 2018).

The risk adjustment program provides payments to health insurance issuers that enroll higher-risk populations, such as those with chronic conditions, thereby reducing incentives for issuers to structure their plan benefit designs or marketing strategies to avoid these enrollees and lessening the potential influence of risk selection on the premiums that issuers charge.

District court ruling. Previously, 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). The district court reasoned that HHS had not adequately explained its decision to adopt a methodology that used statewide average premium as the cost-scaling factor to ensure that amounts collected from issuers equal the amount of 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 (see CMS reissues, with additional analysis, the methodology for the ACA risk adjustment program, August 1, 2018).

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 (CCIO, Implications 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).

Risk adjustments. Although HHS has not yet calculated risk adjustment payments and charges for the 2018 benefit year, CMS stated that immediate administrative action was imperative to maintain the stability and predictability in the individual and small group insurance markets. The Proposed rule would ensure that collections and payments could be made for the 2018 benefit year in a timely manner. This includes the adjustment to the statewide average premium, reducing it by 14 percent, to account for an estimated proportion of administrative costs that do not vary with claims.

HHS noted that without administrative action, the uncertainty related to the HHS-operated risk adjustment methodology for the 2018 benefit year could add uncertainty to the individual and small group markets, as issuers are now in the process of determining the extent of their market participation and the rates and benefit designs for plans they will offer for the 2019 benefit year. Issuers file rates for the 2019 benefit year during the summer of 2018, and if there is uncertainty as to whether payments for the 2018 benefit year will be made, there is a serious risk that issuers will substantially increase 2019 premiums to account for the uncompensated risk associated with high-risk enrollees. Consumers enrolled in certain plans could see a significant premium increase, which could make coverage in those plans particularly unaffordable for unsubsidized enrollees.

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