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.
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.
“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.
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.
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.