CMS Finalizes Risk-Adjustment Rule for 2018 Benefit Year

CMS said Friday that it issued a final rule about insurer risk-adjustment payments for 2018, saying it wanted to provide consistency while the outcome of a court case about the issue is still in play.

In July, CMS had temporarily halted collections or payments under the risk-adjustment program, including amounts for the 2017 benefit year, established by the Affordable Care Act (ACA) for the 2014-2018 benefit period. In August, the agency resumed the payments for the 2017 benefit year.

The risk-adjustment program, finalized by CMS in 2013, included the use of a statewide average premium in order to maintain a budget-neutral program. The provision resulted in the creation of a “risk pool” by participating health insurers to help balance the costs of insurers who have high-risk enrollees. However, the program has seen constant challenges since its inception, particularly for the individual and small-group insurance marketplace.

In February, the US District Court for the District of New Mexico issued a decision vacating the use of statewide average premium. The litigation began in 2016, when CMS was sued by New Mexico Health Connections (NHMC), a nonprofit insurance co-op, over a payment of more than $5 million CMS sought as a transfer. At the time, the co-op said the risk-adjustment methodology punished smaller insurers like itself in favor of larger ones.

“Issuing this rule allows CMS to continue normal operations of the Risk Adjustment program for the 2018 benefit year after a federal judge vacated the use of statewide average premium under the HHS methodology earlier this year,” CMS said in a statement Friday.

“Today’s final rule continues our commitment to provide certainty regarding this important program, to give insurers the confidence they need to continue participating in the markets, and, ultimately, to guarantee that consumers have access to better coverage options,” said CMS Administrator Seema Verma in a statement. “Although the litigation is still pending, thanks to CMS’ clear commitment and ongoing steps to strengthen the markets, I am pleased to report insurer participation on HealthCare.gov increased for the 2019 benefit year, demonstrating improved confidence in the markets.”

CMS said the risk-adjustment program is aimed at reflecting “differences in scope of coverage and other plan factors, not differences in the underlying health status of enrollees.”

NHMC has said in previous court filings that it is being punished for being highly efficient at providing personalized outreach and care management to intervene before its enrollees get sick. That puts them at a disadvantage when compared against larger insurers, they said.

“HHS’ decision to use the statewide average premium, rather than a insurer’s own premium (or other alternatives), in the risk-adjustment methodology has proven disastrous for efficient issuers who try to keep their premiums low through innovative plans and efficiencies, like NMHC, because the prices charged by the largest insurers skew the weighted average closer to their actual premium price,” the insurer has said. “This creates a risk adjustment system that is based more on plan size than risk score, which leads to premium adjustment rather than risk adjustment.”

NHMC has said the methodology under the ACA has forced some co-op plans to shut down. In July, it said that of the 23 original co-op plans set by the ACA, only 4 remain.