Administration Takes Definitive Swipe at ACA

aca uncertainty

The Trump administration is freezing payments under an "Obamacare" program that protects insurers with sicker patients from financial losses, a move expected to add to premium increases next year.

At stake are billions in payments to insurers with sicker customers. The latest administration action could disrupt the Affordable Care Act, the health care law that has withstood President Donald Trump's efforts to completely repeal it.

In a weekend announcement, the Centers for Medicare and Medicaid Services said the administration is acting because of conflicting court ruling in lawsuits filed by some smaller insurers who question whether they are being fairly treated under the program.

The so-called "risk adjustment" program takes payments from insurers with healthier customers and redistributes that money to companies with sicker enrollees. Payments for 2017 are $10.4 billion. No taxpayer subsidies are involved.

The idea behind the program is to remove the financial incentive for insurers to "cherry pick" healthier customers. The government uses a similar approach with Medicare private insurance plans and the Medicare prescription drug benefit.

Latest ACA Move Adds to Insurers' Uncertainty 

The administration's move to suspend billions of dollars in payments that insurers expect injects new uncertainty into the Affordable Care Act's insurance markets right as the companies are deciding next year's rates.

The Centers for Medicare and Medicaid Services said Saturday it was forced to halt further collections or payments under the ACA program known as risk adjustment, because of a federal judge's ruling. Initially, the decision could affect $10.4 billion in payments tied to the 2017 benefit year, which were scheduled to flow this fall.

The insurance industry also warned it would likely push up rates on 2019 plans. The payments are drawn from insurers with a preponderance of relatively healthy customers to subsidize those with a larger contingent of less-healthy policyholders.

America's Health Insurance Plans, a trade group that represents insurers, said it was "very discouraged by the new market disruption brought about by the decision to freeze risk adjustment payments."

CMS officials didn't specify how long the suspension would last or what would trigger a resumption of payments in the program. CMS officials said they are looking for a quick resolution to the legal issues raised.

"We're now in the midst of the 2019 rate-filing process and it's not clear how the risk-adjustment program will be operating," said Cori Uccello, senior health fellow at the American Academy of Actuaries.

The Trump administration said the suspension stems from a February decision by a federal judge in Albuquerque, N.M., who ruled that part of the program's implementation was flawed and hadn't been adequately justified by federal regulators. The ruling came in a case filed by a small nonprofit insurer, which said the program relied on an inaccurate formula that disproportionately rewarded big insurers.

"We were disappointed by the court's recent ruling," CMS Administrator Seema Verma said in the statement. In a separate case in Massachusetts, a federal judge upheld the formula, however.

Some proponents of the health law, popularly known as Obamacare, said the administration didn't have to take the New Mexico judge's ruling as applying to the program outside of New Mexico.

"It's an excuse," said Nicholas Bagley, a University of Michigan law professor.

The risk-adjustment program plays a major role in the ACA markets. The aim is to encourage all insurers to participate in the health-insurance exchanges and sign up a broad consumer base instead of just targeting young, healthy people.

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

The impact of the program on insurers varies widely. Some pay into it and don't get money back, so the suspension won't likely be a financial challenge. However, it could be a blow to those insurers that are expecting payments this fall based on 2017 plans.

For insurers expecting payments, the suspension "would be a big hit to their financial position," said Deep Banerjee, an analyst with S&P Global Ratings. Estimates of the next round of payouts had already been entered in many insurers' books as receivables because they are related to 2017 business, he said.

Insurers use projections of their likely future risk-adjustment payments in setting their rates. The new uncertainty comes as many insurers have been seeing their best financial results so far for ACA plans, and some are expanding into new geographies for next year.

The Blue Cross Blue Shield Association said that if the risk-adjustment issue isn't resolved soon, "this action will significantly increase 2019 premiums for millions of individuals and small-business owners and could result in far fewer health plan choices." The association said CMS already "has the legal justification needed to move forward with the payments regardless of the New Mexico ruling, and should do so to protect consumers."

Rising RatesInsurers already proposed higher premiums for 2019 Affordable Care Act plans. Some may boost them again after the latest move by the Trump administration.

Source: Kaiser Family Foundation*Assumes reinsurance program is not implemented

 Industry officials said insurers need more input from federal regulators about the suspension.

John C. Wisniewski, chief actuary of UPMC Health Plan in Pittsburgh, said the insurer had already filed proposed rates for 2019 plans, and it would likely seek to make changes only if the risk-adjustment program was significantly altered or not in effect for 2019.

If there were a "serious change in the calculations" around risk adjustment for 2019, "we would need to change the premiums as well," he said.

Tom Snook, an actuary with consultants Milliman Inc., said insurers may seek to alter next year's proposed rates if it appears the risk-adjustment methodology is in question for their 2019 business. If only their 2017 and 2018 business is affected by the suspension, they probably can't explicitly seek to recover any held-up money through 2019 rate increases, he said.

However, insurers could potentially argue that they need a bigger profit margin built into their 2019 rates because of the rising uncertainty, he said.

Anna Wilde Mathews This email address is being protected from spambots. You need JavaScript enabled to view it. & Stephanie Armour This email address is being protected from spambots. You need JavaScript enabled to view it.

Source: WSJ

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Tuesday, 23 April 2019