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Short Analysis
July 2018

CMS Suspends Risk Adjustment Program, Endangering Health of Millions

On July 7, the Centers for Medicare and Medicaid Services (CMS) announced a policy change that could fundamentally undermine the individual market, endangering health care for millions of people who get health care through the individual marketplace. CMS announced it will not distribute more than $10 billion out of a "risk adjustment" pool which is funded by insurers who participate in the individual and small-business markets. The risk adjustment program collects funds from insurers that cover healthier people and redistributes those funds to plans that have sicker enrollees. It thus balances out the risks among insurers in the individual market and in the small group market.

The ostensible trigger for the CMS decision to suspend payments is a pair of conflicting rulings by two federal district courts. Four months ago in New Mexico, a judge ruled that the federal risk adjustment formula violates federal law pending further justification from CMS, while a previous ruling by a federal judge in Massachusetts found that the formula complied with federal law. 

The timing of this announcement could not be worse for the stability of the individual marketplace. Health insurance plans are currently weighing which markets to enter and what their premium rates will be in 2019. 

The administration claims that it felt it had no choice but to take this action. We are skeptical this is the case. But if CMS wants to limit the damage done by this destabilizing step, there are clear next steps that it should take. 

The Risk Adjustment Program Helps People With Preexisting Conditions Get Coverage

The risk adjustment program is vital to the functioning of the non-group market (for people who buy coverage on their own) because it facilitates the pooling of risk. It is the risk adjustment program that really enables health insurers to cover people with preexisting conditions and others with high health care costs: It prevents plans that happen to get a larger share of high-cost enrollees than other plans from being at a financial disadvantage. Without risk adjustment in place, plans will have a strong financial incentive to cherry-pick patients who cost less to insure and put up as many barriers as possible for people with preexisting conditions and others with high health care costs. 

The Administration Can Fix This Problem Immediately

In a statement, the Director of CMS, Seema Verma, indicated that CMS is “…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.”

If the administration truly wants to protect consumers from the impact of the ongoing litigation, it will immediately take the following actions: 

  • Request a stay on the impact of the New Mexico court’s ruling
  • File an interim final rule which could “cure” the concerns raised by the court
  • Appeal the ruling by the court
  • Ask the court to clarify that the ruling only applies to plans sold in New Mexico 

Families USA is calling on CMS to back up its claims to be acting in good faith and immediately take these critical actions. Failure to do so would strongly indicate that CMS is, once again, willfully sabotaging health care coverage for millions of people.