A small, nonprofit health insurer in New Mexico is trying to block the current efforts of the U.S. Department of Health and Human Services to keep the Affordable Care Act risk-adjustment program in business.
The program is supposed to protect issuers of individual and small-group major medical coverage of taking on more than their fair share of enrollee health risk by using cash from issuers with enrollees with relatively low health risk scores to compensate the issuers that end up with enrollees with relatively high health risk scores.
New Mexico Health Connections filed a suit against Alex Azar II, the HHS secretary, and against Seema Verma, the administrator in charge of the HHS Centers for Medicare and Medicaid Services (CMS), and in the U.S. District Court for the District of New Mexico .
The Albuquerque, New Mexico-based insurer has asked the court to set aside emergency ACA risk-adjustment regulations that HHS and CMS are implementing for risk-adjustment collections and payments for the 2017 benefit year.
The insurer also filed a motion asking the court to strike down the emergency rule.
New Mexico Health Connections won a judgment from the court in February.
The insurer argued that the current risk-adjustment cash transfer formula is unfair, because it penalizes insurers with lower-than-average premiums, simply because they have lower-than-average premiums. The court agreed with the insurer that CMS and HHS had failed to justify the formula, and it blocked CMS and HHS use of the formula to run the risk-adjustment program.
CMS has tried to overcome the effects of the ruling by taking two actions.
CMS readopted its old risk-adjustment regulations for the 2017 benefits year on an emergency basis.
CMS also has started the process of readopting its old risk-adjustment regulations, for the 2018 benefit year, with a new explanation of why it chose the risk-transfer formula it has been using.
CMS officials argued, in an introduction to draft regulations, that adding an explanation to the old regulations should be enough to overcome the effects of the February court judgment, because the court blocked use of the risk-transfer formula based on the argument that CMS had not explained why it had adopted that particular formula.
The New Suit
New Mexico Health Connections is a carrier that has been required to pay a large percentage of its individual and small-group premium revenue into the risk-adjustment program.
In the motion for immediate action against the emergency rule, the insurer says CMS has violated the federal Administrative Procedure Act, and the U.S. Constitution, by imposing a regulation that requires insurers to pay millions of dollars into the risk-adjustment program without complying with legal requirements to first seek public comments on that requirement.
Marlene Baca, the chief executive officer of New Mexico Health Connections, said in a statement about the legal actions that the company wants to ensure that HHS complies with the Administrative Procedure Act.
“We contend that the emergency regulation continues a risk adjustment formula that disadvantages small, new, and lower-priced health plans in favor of their larger, more expensive competitors,” Baca said. “The CMS formula does not, as it is supposed to, transfer funds equitably from health plans with healthy enrollees to health plans with sick enrollees. We support the concept of fair and equitable risk adjustment and we will continue to fight to protect consumers and provide fair insurance rates.”
New Mexico Health Connections says that its individual health enrollees had an average risk score that was slightly above the state average, and that the small-group enrollees had an average risk score that was 1% below the state average.
The company is facing big risk-adjustment bills mainly because its average small-group premiums were 22% below the state average, the company says.
“CMS is exacting this unfair financial penalty against Health Connections for lowering prices to small businesses and consumers and making health care more affordable for New Mexicans,” the company says.
The company says it has been working to challenge the risk-adjustment formula in court since the summer of 2016.
“Rather than use the court’s ruling as an opportunity to engage with small plans like Health Connections and reform their program, CMS instead ignored the court’s ruling for five months and then issued a new regulation reusing the same formula without giving Health Connections and other members of the public a chance to be heard,” the company says.
CMS has argued that a formula that let insurers use their own premiums to calculate risk-transfer payments could create risk-transfer funding shortfalls and would make the risk transfers more difficult for insurers to estimate in advance.
The agency has also argued that it has to have risk-adjustment rules in place now to persuade insurers to offer individual major medical plans in 2019. The individual major medical open enrollment period for 2019 is set to start Nov. 1.
— Read New Mexico Insurer Welcomes ACA Risk-Adjustment Freeze, on ThinkAdvisor.