HHS is appealing a New Mexico district court's decision that struck down the risk adjustment formula back in February.
U.S. District Judge James Browning previously vacated the CMS risk adjustment program, citing it was based on flawed equations.
In response, CMS released a new risk adjustment payment rule for benefit year 2018 last week. In its rule, which didn't go through a public comment process, CMS bases the formula on state-based average premiums. After the ruling earlier this year, CMS froze more than $10 billion in payments to insurers before restarting the program.
CMS issued the recent risk adjustment payment rule to allay payer fears about what to expect in the Affordable Care Act marketplace. Risk adjustment plays a vital role for ACA payers. Without it, critics fear insurance companies would cherry-pick healthier members.
Risk adjustment helps payers by providing more funding to cover people with lower health status. CMS Administrator Seema Verma said recently that CMS commitment to the risk adjustment is one reason more payers are now offering ACA plans.
Meanwhile, the appeal from HHS is now looking to reverse the earlier court decision. In the case, New Mexico Health Connections charged that the agency's risk adjustment model favored large payers at the detriment of small insurers and co-ops like New Mexico Health Connections.
Payers are cautiously optimistic about 2019, which is evident in the small average rate increases planned for next year. However, the recent court case that deemed the ACA unconstitutional, as well as Congress ending the individual mandate penalty and the Trump administration expanding short-term plans and association health plans could result in millions dropping their ACA plan next year.
Without the individual mandate, the Congressional Budget Office projected 13 million people will lose or drop insurance over the next decade. Many of those stopping coverage will be healthy, which could lead to ACA plan premiums to increase by 10% annually in most years, CBO said.
Also, a recent joint report from the Center for Health Policy at the Brookings Institution and the USC Schaeffer Center for Health Policy & Economics estimated that about 8 million people would have been uninsured without the mandate in 2016.
Those numbers are causing unease among ACA payers. Losing risk-adjustment payments would only cause more headaches and could nudge payers to drop ACA plans rather than face uncertainty.