- A federal appeals ruled in HHS' favor this week, finding nothing wrong with the formula used to calculate billions in risk adjustment payments under the Affordable Care Act.
- The ruling reverses a lower court decision that came to the opposite conclusion and found the formula was arbitrary and capricious. The lower court delivered a win to New Mexico Health Connections, a health insurance co-op, which initially filed the suit against HHS.
- In this latest 3-0 decision, the three-judge panel of the U.S. 10th Circuit Court of Appeals found HHS "acted reasonably" in calculating the formula.
The lower court ruling created uncertainty within the insurance industry, especially after CMS temporarily froze the payments following the court's ruling, drawing criticism from the insurance industry lobby that said the disruption would drive up premiums for consumers.
This week's ruling provides more certainty for insurers that rely on the funding.
America's Health Insurance Plans and the Blue Cross Blue Shield Association had advocated for the appeals court to reverse the lower court's decision in a joint amicus brief.
The two argued it would be inconceivable to set aside the risk adjustment payments rules from previous year and come up with an entirely new formula.
"The risk adjustment program involved over 700 issuers and totaled roughly $5 billion in payments each year — with AHIP’s and BCBSA’s members among companies on both sides of the risk adjustment ledger," the amicus brief said.
The legal fight primarily centers around three words: "statewide average premiums." HHS relied on statewide average premiums in its formula for the risk adjustment payments.
New Mexico Health Connections argues that averaging all premiums paid to health insurance in a given state favors large insurers.
The Affordable Care Act was designed to increase the number of people with insurance regardless of their previous medical history. The law bars insurers from denying people coverage because of pre-existing medical conditions.
The risk adjustment payments were one way to entice insurers to offer plans to the individual and small group markets.
To spread out the risk evenly and to promote insurer participation in the exchanges, the ACA calls for funds to be moved from plans with healthier members to those who tend to have sicker members.
The idea was to encourage insurers from trying to cherry pick healthier members, avoiding sicker patients. HHS was tasked with developing the formula for calculating the risk adjustment payments.
New Mexico Health Connections could not be immediately reached for comment.