HHS Issues Regulations to Resume Collections and Payments Under the Risk Adjustment Program

HHS has posted final regulations that reissue, with additional explanation, the risk adjustment methodology previously established under the risk adjustment program for 2017. HHS states that these regulations, issued in response to a court ruling vacating the methodology, will allow the agency to resume collections and payments under the program without delay. As background, the risk adjustment program, established under the Affordable Care Act (ACA), applies to non-grandfathered plans and insurers in the individual and small group markets. It is intended to stabilize premiums and reduce incentives for insurers to avoid higher-risk enrollees (such as those with chronic conditions) by transferring funds from insurers with lower-risk enrollees to insurers with higher-risk enrollees. Plans with lower-than-average actuarial risk are assessed charges that are used to make payments to plans with higher-than-average actuarial risk.

A district court in New Mexico barred the agency from using its methodology (which relies on statewide average premiums) in the risk adjustment transfer formula for 2014–2018 on the grounds that HHS did not adequately explain its decision to adopt a methodology that ensures that amounts collected from insurers equal payments made to insurers (budget neutrality). (A contrary ruling was previously made by another district court in Massachusetts, which upheld the risk adjustment formula.) Earlier this month, HHS announced that the New Mexico ruling prevented it from making further risk adjustment collections and payments based on statewide average premiums until the litigation is resolved. Although HHS has asked the court to reconsider its decision, its news release notes that the New Mexico court may not reach a decision on the motion to reconsider until September. Acknowledging that billions of dollars are at stake and failure to make payments under the program could undermine the stability of the insurance markets, HHS decided to reissue these regulations to provide a fuller explanation supporting the 2017 methodology, including use of statewide average premiums and budget neutrality.

EBIA Comment: Only the risk adjustment methodology for 2014–2018 is at issue under the New Mexico ruling. These regulations address the risk adjustment methodology for 2017; HHS has indicated that it expects to issue separate regulations specifying the methodology for 2018. For 2019, HHS has already finalized recalibrated parameters for the risk adjustment methodology (see our Checkpoint article). HHS’s decision to restore operation of the risk adjustment program is aimed at curbing any further uncertainty in the health insurance market, including coverage on the Exchanges. (In October 2017, HHS also stopped making cost-sharing reduction payments to insurers offering individual coverage on the Exchanges (see our Checkpoint article).) Unlike the ACA’s risk corridors program (which was in effect from 2014–2016, and is the subject of other ongoing litigation—see our Checkpoint article), risk adjustment is a permanent program. For more information, see EBIA’s Health Care Reform manual at Sections XX.E (“Mechanisms to Allocate Risk: Risk Adjustments”) and XXI (“Exchanges, Qualified Health Plans (QHPs), and CO-OPs”).

Contributing Editors: EBIA Staff.