CMS finalizes plan to continue risk-adjustment program for 2018

The CMS on Friday issued a final rule that allows the agency to continue the normal operations of the Affordable Care Act risk-adjustment program for 2018.

A federal judge ruled in February that HHS couldn't use statewide average premiums to come up with its risk-adjustment formula. The Trump administration in July subsequently froze payments to insurers for 2017 under the risk-adjustment program, but later that month issued a final rule restoring the program for that year.

The rule released Friday allows CMS to move on with the risk-adjustment program for the 2018 benefit year, even though litigation over the methodology is ongoing, the agency said.

"Today's final rule continues our commitment to provide certainty regarding this important program, to give insurers the confidence they need to continue participating in the markets, and, ultimately, to guarantee that consumers have access to better coverage options," CMS Administrator Seema Verma said in a statement.

The ACA's permanent risk-adjustment program was meant to reduce the incentive for health plans to cherry-pick healthy members. It works by shuffling money from plans with healthier-than-average members to plans with larger numbers of sicker, high-cost members. The program is based on a patient's risk score, which is determined by a demographic information and health conditions.

But smaller, regional plans and ACA co-ops say that their membership bases look healthier than they are. Health insurance co-op New Mexico Health Connections sued the federal government over the risk-adjustment program in July 2016, arguing that the Obama administration implemented the program in a way that penalizes new, low-cost insurance companies, while rewarding larger legacy health plans. It argued that the risk-adjustment formula is flawed in part because it uses the statewide average premium to set the amount of payments and charges for plans.

The federal judge agreed with the co-op, arguing that the government's explanation for using the statewide average premium instead of a health plan's own premium wrongly assumed that the ACA requires risk-adjustment to be budget-neutral. The judge said HHS did not adequately justify its reasons for requiring budget neutrality.

The CMS issued the final rule Friday without changing its risk-adjustment methodology. It still uses the state-wide average premium. But it said it included additional explanation regarding the use of that measure and the budget-neutrality of the risk-adjustment program. The CMS first included that explanation in its proposed rule in August.