- CMS is freezing $10.4 billion in Affordable Care Act risk-adjusted payments, designed to stabilize the insurance market by redistributing money to insurers with higher-cost members. With the program on hold, premiums are expected to rise in 2019.
- Citing two conflicting federal court cases on the use of statewide average premiums in its decision, CMS said it cannot collect or redistribute funds for risk-adjusted payments. In February, the U.S. District Court of New Mexico found the program to be based on flawed equations, and the agency has asked the court to reconsider its ruling, according to a recent statement.
- Insurers are frustrated by the decision to halt the payments, with America's Health Insurance Plans warning of "serious consequences for millions of consumers," while Blue Cross Blue Shield Association CEO Scott Serota said the decision will "significantly increase 2019 premiums."
The decision to halt the payments casts further uncertainty over the ACA marketplaces at a time when insurers are finalizing their offerings for open enrollment in November.
While the move will prevent larger, institutional payers like Anthem from collecting millions of dollars from the program to pay for higher-need members, it could be a short-term boon for small plans and ACA co-ops, which have historically been on the paying end of the funding mechanism.
Molina and Centene could each avoid $1 billion in payments into the pool for 2017, according to Jefferies.
More than a dozen co-ops have failed since the ACA's implementation, and most have blamed the risk adjustment program.
Larger insurers have called for CMS to quickly devise an alternative to risk-adjusted payments. Blue Cross Blue Shield's Serota said the decision to freeze the program will "create turmoil" for insurers and small businesses in the small group market and "undermine Americans' access to affordable coverage."
"The program does not cost taxpayers any money and has worked effectively to help balance the cost of caring for those with significant health needs by ensuring that health plans are able to enroll all consumers, regardless of their health status," Serota said in a statement.
Last month, the U.S. Court of Appeals for the Federal Circuit ruled that HHS is not obligated to pay insurers about $12 billion in risk corridor payments, another market stabilization program implemented by the ACA. In that program, high-performing insurers contributed to a fund that would pay out underperforming insurers. Insurers have been able to offset the costs of risk corridor payments by way of premium hikes.
Unless CMS pursues corrective action following its decision on risk adjusted payments before open enrollment, many in the industry expect higher premiums and more exits from the ACA's individual marketplaces.