The Trump Administration announced Saturday it was putting a stop to risk adjustment payments. The government doesn't make these payments itself. The risk adjustment system takes money from insurers on the individual health insurance marketplace with less risky patient pools and gives it to those with riskier patient pools. The idea is to spread the cost of covering the least healthy patients in the marketplace.
The Center for Medicare & Medicaid Services, which administers the risk adjustments, elected to end the payments after a court in New Mexico decided in February the formula the government was using was invalid. The move freezes $10.4 billion in transfers among insurers.
For people currently enrolled in plans under former President Barack Obama's health care law, nothing should change this year. But insurers finalize prices for 2019 health care plans by September. If the payments aren't unfrozen by then, it could affect how high they set their premiums.
Wait, why is this even happening?
In the risk adjustment system, some insurers give and others receive. The payments are calculated using a formula based on the average premium in each state. A health insurer in New Mexico filed a lawsuit saying the formula unfairly rewarded larger insurers, and a judge ruled that the formula was flawed. As a result, CMS said it would put a stop to the payments "until the litigation is resolved."
The risk adjustment system can disadvantage smaller insurers, said Kathy Hempstead, senior adviser for the Robert Wood Johnson Foundation. Insurers who offer narrower networks tend to attract people with fewer health needs. Their patient pools end up being less risky, so they end up making payments to bigger insurers with broader networks and less healthy patients.
That said, it's not clear CMS needed to halt the payments altogether. The payments are required under the Affordable Care Act. A court in Massachusetts, ruling on a lawsuit by another insurer, upheld the formula in a separate decision.
Who does the freeze affect?
The big losers are likely to big insurers. America's Health Insurance Plans, an industry group, issued a statement decrying the freeze:
"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."
Blue Cross Blue Shield Association CEO Scott Serota said he was also disappointed by the freeze.
"Without a quick resolution to this matter, this action will significantly increase 2019 premiums for millions of individuals and small business owners and could result in far fewer health plan choices," he said in a statement. "It will undermine Americans’ access to affordable coverage, particularly for those who need medical care the most."
Smaller insurers stand to benefit, at least in the short-term. For markets with only one carrier, the loss of risk adjustment won't make a difference. But long-term, risk adjustment helps foster a competitive market, Hempstead said.
How does this end?
Hempstead expects CMS to resolve the issues with the formula by the end of the summer. The risk adjustment system is budget friendly. In fact, it's budget neutral aside from administrative costs, so it's not a question of having enough money.
"Even if, for some reason, the feds decided, we don't want to actively manage this program anymore, it is something that theoretically the states could do themselves," Hempstead said.
Massachusetts already does this.
Seema Verma, CMS administrator, said she hopes the court will reverse its ruling, but it's fair to doubt the Trump administration's intentions.
The White House has made several moves to undermine Obamacare, with President Donald Trump declaring it dead several times. But unless Congress acts, the Affordable Care Act is still the law, and risk adjustment payments are still part of that law.