UPDATE: Oh, joy: The seriousness of the #RiskAdjustmentFreeze appears to rely on "how quickly" and "how coordinated" the Trump Admin. is at resolving it.

2019 OPEN ENROLLMENT ENDS (most states)

Time: D H M S

OK, I wasn't expecting this at 10:40pm on a Friday night, but here you go...via Stephanie Armour and Anna Wilde Mathews of the Wall St. Journal:

Trump Administration Expected to Suspend ACA Program Related to Insurer Payments

The Trump administration is expected to suspend an Affordable Care Act program that plays a key role in the health law’s insurance markets, a move that could deal a financial blow to many insurers that expect payments.

The suspension of some payouts under the program, known as risk adjustment, could come in the wake of a recent decision by a federal judge in New Mexico, who ruled that part of its implementation was flawed and hadn’t been adequately justified by federal regulators, people familiar with the plans said.

The Centers for Medicare and Medicaid Services, which oversees the program, may at least temporarily suspend the payments insurers expected to receive this fall, stemming from their 2017 business, and next fall, which would have reflected their 2018 business, the people said.

...The agency had been expected to put out a report at the end of June detailing the next round of risk-adjustment payments, but it hasn’t been issued.

OK, I'm absolutely no expert on Risk Adjustment, but here's the basics:

  • The ACA included three different market stabilization programs (the "Three R's"): Reinsurance, Risk Corridors and Risk Adjustment.
  • The Reinsurance program worked pretty well as I understand it, but it was temporary, only lasting 3 years (through 2016). Several states have since created their own state-level reinsurance programs, and they're working out nicely so far (Alaska, Oregon and Minnesota, with New Jersey, Maryland and Wisconsin up to bat).
  • The Risk Corridor program was also limited to 3 years, but it was basically crippled before the first annual payments could even be made via the infamous Risk Corridor Massacre.
  • That leaves the Risk Adjustment program, which is permanent. The simplest explainer is that each year, the carriers which luck out on their risk pools by enrolling a lot of really healthy people have to pay a portion of their revenue out to the carriers which get "stuck" with a lot of really sick people. This heavily discourages carriers from marketing themselves only to young/healthy types while trying to put barriers in the way of older/sicker types.

How much money are we talking about here?

For 2016, risk-adjustment transfers were valued at 11% of total premium dollars in the individual market, according to a CMS report.

OK, so here's what happened: Two small carriers (ironically, both of them just happen to be two of the remaining ACA-created Co-Ops...one in Massachusetts, one in New Mexico) sued CMS via two separate lawsuits a couple of years back, claiming that the formula (which is pretty complicated) used to determine who pays in, who gets a payout and how much of each, was flawed and needs to be (no pun intended) ...adjusted. One judge (from the New Mexico case) agreed, the other one didn't.

OK, fair enough...so the judge ruled that CMS has to tweak the formula right? This shouldn't be that big of a deal, and in fact the New Mexico case came up with a simple solution:

Given this impact, HHS asks the court to use its discretion to remand the rule to the agency without vacating it. Alternatively, if the court wants to vacate the rule, it should be vacated only with respect to the risk adjustment program in New Mexico (rather than nationwide).

In other words, there are several options available here which aren't terribly drastic:

...Timothy S. Jost, an emeritus professor at Washington and Lee University, said it appeared that federal officials might still have other legal options before suspending payments. Mr. Jost said federal regulators could issue a rule formally offering a justification for the risk-adjustment methodology’s use in past years, then ask the judge to consider that.

Yes, that's right--CMS may very well cut off payments already due from 2017...which is a real problem because:

But it could be a financial blow to those insurers that are expecting payments this fall based on 2017 plans, and potentially for those that expected payments in the fall of 2019 based on their 2018 business. It would rattle those insurers if a suspension occurs, said Larry Levitt, a senior vice president at Kaiser Family Foundation.

The point is that there's absolutely no reason whatsoever for CMS to stop making these payments. The decision to do so is a purely cynical one: Trump saw an opportunity to use this as an excuse to stop the payments, so he's doing so.

Former CMS Administrator Andy Slavitt lays all of this and more out in a Twitter thread (I've condensed it below for easier readability):

Quick explanation is that HHS assumes payments need to be made in a budget neutral fashion. 1 court ruled that has been clearly enough stated as a rationale. New Mexico believes that needs to be made clearer. Not a reason to stop all the payments unless politically motivated. 5/

— Andy Slavitt (@ASlavitt) July 7, 2018

HHS could issue what is known as an “interim final rule” to clarify and resolve everything. But instead Trump is using this as a big bullet in hopes of finally killing the ACA.

Last year at the 11th hour, Trump ordered CSR payments stopped. He hoped this would cause insurers to exit. Instead it backfired as states helped insurers adjust their pricing.

Next he introduced plans that would take all the good risks away from the market with poor benefits and signed a law driving up prices by eliminating the mandate provision. But none of it worked other than to raise prices and make him look bad.

But something else happened. All of this caused many insurers to leave many places with only one or two insurers.

No his goal in holding a large sum of money owed to them would be to create enough chaos that insurers leave and many can’t find ACA coverage.

Some people’s reality is being able to affordably care for their families. For Trump, his reality is to be able to stand at a rally and say he has killed the ACA.

The Republicans did this before. Led by Marco Rubio they cut what amounted to $12 billion in Risk Corridor payments to insurers. This put many small insurers out of business and caused others to withdraw from the market. Small nonprofit community plans need this funding.

At every turn, at every opportunity, Trump and the Rs in Congress will continue to aim to damage or kill the ACA. This is one more shot at Americans’ health care.

This is gonna be pretty ugly for the carriers which are owed money, while the ones which tend to have mostly healthy enrollees will actually likely stand to benefit from it. As David Anderson noted this evening, states which only have a single insurance carrier on the individual market will, ironically, not be impacted one way or the other, since there's no one paying in or getting a payout to begin with.

However, it's a very big deal for many carriers in most states, and even in the best scenario it adds yet another massive amount of uncertainty and confusion to the carriers in terms of whether they plan on participating in the ACA exchanges next year, what plans they intend to offer, and of course how much they price those policies at.

Remember: Only about 20 states have even submitted their 2019 rate filings publicly so far, and those are all preliminary...nothing is settled until they sign the contracts in late September, so there's still plenty of time for carriers to bail out of counties, regions or entire states.

This just happened within the past hour or so, and as I said above, I'm not an expert on the Risk Adjustment program, so I'll leave it there for now. Stay tuned...

UPDATE 7/7/18: Yup, sure enough, here's the official Risk Adjustment payment freeze announcement from CMS:

On February 28, 2018, the United States District Court for the District of New Mexico issued a decision invalidating use of the statewide average premium by the Center for Medicare & Medicaid Services (CMS) in the risk adjustment transfer formula established under section 1343 of the Patient Protection and Affordable Care Act for the 2014 – 2018 benefit years, pending further explanation of CMS’s reasons for operating the program in a budget neutral manner in those years. The ruling prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved. 

According to every expert I've read/asked so far, this last sentence is complete nonsense; they all agree that there's absolutely no reason for the 2017 payments to be stopped.

In light of a contrary decision by the United States District Court for the District of Massachusetts, the government moved the New Mexico district court to reconsider its decision, and CMS is currently awaiting the court’s ruling. CMS is seeking a quick resolution to the legal issues raised and will inform stakeholders of any update to the status of collections or payments at an appropriate future date. The calculated risk adjustment transfer amounts for the 2017 benefit year are $10.4 billion, which includes transfers across catastrophic, small group, and individual non-catastrophic risk pools. 

That's how much money we're talking about here: $10.4 billion. Note that this includes both the individual and small group markets combined, so we're talking about policies covering perhaps 28 million people total (~15 million individual market, ~13 million small group).

“We were disappointed by the court’s recent ruling. As a result of this litigation, billions of dollars in risk adjustment payments and collections are now on hold. CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets,” said CMS Administrator Seema Verma. 

Again: According to everyone I've heard from so far, this is hogwash.

The New Mexico district court’s ruling currently bars CMS from collecting or making payments under the current methodology, which uses the statewide average premium. This aspect of the risk adjustment methodology was promulgated as part of a regulation first issued by the Obama Administration in 2013. CMS will provide additional guidance shortly on how it will handle other issues relating to risk adjustment payments, including EDGE server data collection operations, appeals of 2017 risk adjustment amounts, and how issuers should treat risk adjustment amounts in the calculation of medical loss ratios.   

Again: No, apparently it does not.

Timeline of Key Events 

  • March 23, 2010 - The Patient Protection and Affordable Care Act (PPACA) is signed into law by President Obama. 
  • March 11, 2013 - CMS finalizes a risk adjustment methodology for States where HHS operates the program that includes the use of the statewide average premium in order to maintain a budget neutral program.
  • July 29, 2016 - New Mexico Health Connections files a complaint in U.S. District Court in New Mexico arguing, among other points, that CMS’s use of the statewide average premium was arbitrary and capricious. Minuteman Health, Inc. files a similar complaint in U.S. District Court in Massachusetts the same day. 
  • January 30, 2018 – The US District Court for the District of Massachusetts rules for CMS, finding that CMS acted within its authority in promulgating the HHS-operated risk adjustment methodology based on the statewide average premium.
  • February 28, 2018 - The US District Court for the District of New Mexico issues a decision invalidating CMS’s use of the statewide average premium in the risk adjustment transfer formula for the 2014-2018 benefit years, pending further explanation of CMS’s reasons for operating the risk adjustment program in a budget neutral manner in those years.  Following this decision, CMS files a motion for reconsideration.
  • June 21, 2018 - A hearing is held on CMS’s motion for reconsideration.  

The Final 2017 Benefit Year Risk Adjustment Summary Report and accompanying issuer transfer reports will be released soon.

UPDATE: Over at Huffington Post, Jonathan Cohn and Jeffrey Young have an excellent piece which goes into the nitty-gritty:

...Administrations don’t typically concede so much, so soon in the face of district court decisions, [U of M law professor Nicholas] Bagley said. “Otherwise, a lone judge could throw an entire agency’s work into disarray,” he added.

He noted that the administration has multiple options at its disposal, like interpreting the court decision narrowly, so that it only affects New Mexico. It could also write a so-called interim rule that would allow payments to proceed. 

“They’re asking the court to reconsider, which is something,” Bagley said. “But there are lots of ways to limit the scope in the meantime and they’ve chosen to do none of them. ... Normally, you would work a lot harder, as the federal government, to keep your program going.”

It is not clear how long the payment suspension will last or how different parts of the administration ― HHS, the White House and the Justice Department, which handles the litigation ― are coordinating their actions.

If the situation with immigrant children being stolen from their parents, locked in cages and then having their identification records "lost" is anything to go by, I'm not terribly optimistic about the Trump Administration's "coordination" capabilities (or intentions).

But if the administration really does wait on the outcome of litigation, and it drags on for weeks or months or even years, then the impact on insurers expecting to get those payments could be considerable.

“The key thing to watch is whether the Trump administration uses the legal dispute as an excuse to cancel payments to insurers and create chaos, or instead tries to work through the legal process and make the payments as planned,” Larry Levitt, senior vice president at the Henry J. Kaiser Family Foundation, said on Twitter.

...By the same token, some insurers that expected to pay into the risk adjustment system because they had relatively healthy enrollees won’t have to make the payment ― for now. But because they might yet have to make the payments later, they will continue to carry the liability on their books, even as they hold onto the cash.

In other words, the carriers which are owed money won't receive that money (at least for awhile)...and will have to eat the loss at least temporarily. The carriers which are supposed to pay money out won't have to (temporarily)...but will still have to reserve that money to be paid later, so there won't be any windfall for them unless the payments never end up having to be paid out.

...“some of the smaller insurers that expected to receive risk adjustments payments may see their balance sheet worsen,” [David Anderson] said. “There is a chance that state regulators may increase their oversight of these insurers, which could lead to liquidation.”

This is exactly what happened with over a dozen Co-Ops after the Risk Corridor Massacre (again, ironically, the counterparts of the very Co-Ops which filed the Risk Adjustment lawsuits in the first place). Even if they had ended up eventually winning their lawsuits (which they didn't), that ruling would have happened years after they had already been liquidated, which wouldn't have done any good for the 800,000+ people enrolled in their policies back in 2014-2015.

Hans Leida of Milliman, the global actuarial firm based in Minneapolis, echoed these concerns. He told HuffPost that a long suspension in payments “could be catastrophic for an insurer that is in a weak financial position and needs the cash. Maybe it’s just a delay of [payments] that will eventually happen, and as an insurer in theory you know you will come out whole, but that assumes you have enough money to keep operating.”

It's my understanding that the risk adjustment issue has been resolved for 2019 and beyond, and theoretically shouldn't impact 2019 premium rates, but...

Shorter delays could be consequential as well, Leida said, because industry officials are already negotiating with state regulators over next year’s rates. Insurers aren’t supposed to adjust premiums in the future to adjust for past gains or losses, but they use past risk adjustment payments as a way to calibrate projections of who they will enroll next year.