ACA Risk-Adjusted Payments Halted after Judge’s Ruling

UPDATE: On Tuesday, July 24, the Trump administration restored the risk-adjusted payments to prevent “chaos” in the health insurance market.

Risk-adjusted payments, a principal component of the Affordable Care Act (ACA, or Obamacare) that seeks to level the playing field among insurers, have been put on hold by the Centers for Medicare and Medicaid Services (CMS) following a judge’s ruling that found the plank “capricious and arbitrary.”

cms-proclaims-obamacare-death-spiralThe payments are designed to take profits from insurers who end up with more low-risk policyholders and share them with insurers who end up with more high-risk (older, sicker) policyholders. At stake are $104 billion from 2017.

“We were disappointed by the court’s recent ruling,” CMS Administrator Seema Verma said in a statement. “As a result of this litigation, billions of dollars in risk adjustment payments and collections are now on hold. 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.”

The “recent ruling” refers to a decision by U.S. District Court Judge Thomas Browning in New Mexico that questioned the methodology used to determine the payments.

If what CMS is viewing as a temporary halt in the funding program lasts too long, it risks ratcheting up premiums even further come the next Obamacare open enrollment period in November, and premiums have already risen double digits in the past couple of years.

“We are very discouraged by the new market disruption brought about by the decision to freeze risk adjustment payments,” trade group America’s Health Insurance Plans (AHIP) said in a statement today after the announcement was made.

“This decision will have serious consequences for millions of consumers who get their coverage through small businesses or buy coverage on their own. It will create more market uncertainty and increase premiums for many health plans — putting a heavier burden on small businesses and consumers, and reducing coverage options. And costs for taxpayers will rise as the federal government spends more on premium subsidies.”

In a related development, the U.S. Court of Appeals for the Federal Circuit ruled in June that a similar program — called the risk corridor program — “lacks the trappings of a contractual agreement” and needn’t pay insurers about $12 billion this year. In previous years, Congress has suspended the government’s obligation to pay out under the program, which is designed to compensate insurers who suffer high costs related to their exchange operations.

NOTE: The details in this blog are provided for informational purposes only. All answers are general in nature and do not constitute legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The author specifically disclaims any and all liability arising directly or indirectly from the reliance on or use of this blog.
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