U.S. to freeze payments for insurance risk pool
Decision raises warnings on costs, instability
WASHINGTON — President Donald Trump’s administration said Saturday that it was suspending a program that pays billions of dollars to insurers to stabilize health insurance markets under the Affordable Care Act, a freeze that insurers say will increase uncertainty in the markets and drive up premiums this fall.
Risk adjustment is one of three methods built into the 2010 health care law to help insulate insurance companies from the requirement that they accept all customers — healthy and sick — without charging more to those who need substantial care.
The other two methods were temporary, but risk adjustment is permanent. Federal health officials are required each year to calculate which insurers with relatively low-cost consumers must chip in to a fund, and which ones with more expensive customers are owed money. This idea of pooling risk has had significant practical effects: encouraging insurers to participate in the insurance marketplaces the law created for Americans who cannot get affordable health benefits through a job.
In its announcement, the Centers for Medicare and Medicaid Services said that it is not going to make $10.4 billion in payments that are due to insurers in the fall for expenses incurred by insurers last year.
“Any action to stop disbursements under the risk-adjustment program will significantly increase 2019 premiums for millions of individuals and small-business owners, and could result in far fewer health plan choices,” said Justine Handelman, a senior vice president of the Blue Cross and Blue Shield Association. “It will undermine Americans’ access to affordable care, particularly for those who need medical care the most.”
Trump administration officials said they decided to suspend payments under the program because of a ruling in February in U.S. District Court in New Mexico.
The dispute goes back about three years to a new type of nonprofit insurer, known as Consumer Oriented and Operated Plans (co-ops), created by the health law as alternatives to traditional insurance companies. Most of the co-ops found themselves in such fragile financial condition that they closed, and a few that have survived sued the government, alleging they were unfairly making contributions into the risk-adjustment fund while larger, better-established insurers were receiving payments.
In two cases, federal district judges in Massachusetts and New Mexico reached opposite conclusions. The Massachusetts judge found the formula fair, but the one in New Mexico ruled that it was “arbitrary and capricious.”
“We were disappointed by the court’s recent ruling,” said Seema Verma, the administrator of the Centers for Medicare and Medicaid Services. “As a result of this litigation, billions of dollars in risk-adjustment payments and collections are now on hold.”
Verma said her agency had asked the court to reconsider its ruling and was hoping for a prompt resolution of the issue, to “prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets.”
But supporters of the Affordable Care Act said the move was the latest example of the Trump White House’s efforts to undermine the health law.
“The Trump administration just keeps pushing their destructive repeal-and-sabotage agenda, no matter the cost to the American people,” said Brad Woodhouse, the director of Protect Our Care, an advocacy group that supports the health law.
“Following through with this latest act of sabotage could raise rates for all consumers even more.”
Some insurers expressed alarm at the administration’s decision, which comes just as insurance companies are developing premiums for 2019 and states are reviewing proposed rates.
“We are very discouraged by the new market disruption brought about by the decision to freeze risk-adjustment payments,” said Matt Eyles, the president and chief executive of America’s Health Insurance Plans, a trade group for insurers.
He predicted that costs to taxpayers would rise because the government provides subsidies that increase along with premiums. Those premium subsidies, for low- and moderate-income people, will continue.
The decision in February, by Judge James Browning, voided the formula used by the federal government to calculate risk-adjustment payments each year from 2014 to 2018.
Trump administration officials said they were caught between two conflicting court rulings. The New Mexico ruling prevents the government from making further collections or payments under the risk-adjustment program using the current formula, they said. But, they added, in January a federal district judge in Massachusetts upheld the method used by the government to calculate such payments.
While insurers warned of market turmoil if the payments were withheld, Martin Hickey, the founder of New Mexico Health Connections, the company that filed the lawsuit in that state, said the court ruling there would benefit consumers.
“The risk-adjustment formula was extremely biased in favor of large, established insurers and discriminated against new and small insurers, including co-ops like ours,” Hickey said in an interview Saturday.
“People spin the administration’s decision as Trump trying to do harm, but it’s exactly the opposite,” Hickey said. “It will allow more companies to get into the insurance market. That will increase competition, and competition will help keep prices down.”
Browning said the payment formula was flawed because federal officials “assumed erroneously” that collections and payments under the risk-adjustment program had to offset each other so there would be no new cost to the federal government.
That might have been a rational policy choice, he said, but the government never articulated its reasons.
The Trump administration blamed President Barack Obama on Saturday, saying, “This aspect of the risk-adjustment methodology was promulgated as part of a regulation first issued by the Obama administration in 2013.”