The Centers for Medicare & Medicaid Services on July 7 announced that it will temporarily halt collections and payments under the Affordable Care Act's risk adjustment program in light of a U.S. federal district court's February 28 ruling "invalidating use of the statewide average premium" in its risk adjustment transfer formula.
That ruling, handed down in response to a lawsuit filed in the U.S. District Court for the District of New Mexico by New Mexico Health Connections — the state's consumer operated and oriented health plan — said the U.S. Department of Health and Human Services' reliance on the statewide average premiums was arbitrary and capricious. In particular, the court in New Mexico Health Connections v. U.S. Department of Health and Human Services (CIV16-0878-JB/JHR) said "the administrative record indicates that HHS assumed, erroneously, that the ACA requires risk adjustment to be budget neutral, and all of HHS' reasons for using the statewide average premium rely on that budget neutrality assumption."
The program was meant to spread risk across the wider market by collecting money from plans with healthier members and distributing it to those with riskier members. It has come under fire, however, for extracting more money from some insurers and co-ops than those entities can afford.
In its July 29, 2016, lawsuit, New Mexico Health Connections argued that the risk adjustment program punishes health co-ops and plans that effectively manage their operations. The co-op noted that it was ordered to pay $14.6 million under the program. Minuteman Health Inc. filed a separate lawsuit that same day in the U.S. District Court for the District of Massachusetts, making similar arguments and explaining that it had been ordered to pay $16.7 million under the risk adjustment formula.
But unlike the federal court in New Mexico, the one in Massachusetts handed down a ruling Jan. 30 in Minuteman Health v. U.S. Department of Health and Human Services (CIV16-11570-FDS) finding that HHS "acted within the bounds of its authority, even when the consequences of its choices may not always have been optimal."
In light of the conflicting decisions, the government has asked the New Mexico district court to reconsider its finding. Meanwhile, the "ruling 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," the agency said in a new release.
CMS said the calculated risk adjustment transfer amounts for that benefit year are $10.4 billion, "which includes transfers across catastrophic, small group, and individual non-catastrophic risk pools."
"We were disappointed by the court's recent ruling," CMS Administrator Seema Verma said. "CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets."