Trump Administration's freeze on $10.4 billion in risk adjustment payments disrupts markets

America's Health Insurance Plans said the Trump Administration's decision this weekend to freeze $10.4 billion in risk adjustment payments will further disrupt the individual and small group markets, raise premium rates and increase costs for all taxpayers.

"We are very discouraged by the new market disruption brought about by the decision to freeze risk adjustment payments. This decision comes at a critical time when insurance providers are developing premiums for 2019 and states are reviewing rates," AHIP said by statement. "It will create more market uncertainty and increase premiums for many health plans - putting a heavier burden on small businesses and consumers, and reducing coverage options." 

It will also increase costs for taxpayers as the federal government spends more on premium subsidies, AHIP said.

The budget neutral risk adjustment program was one of three established under the Affordable Care Act to redistribute funds and limit losses for insurers which take on high risk beneficiaries in ACA plans.

Under the Trump Administration, the Republican-led Congress unsuccessfully tried to repeal and replace the ACA. The current administration undid ACA mandates designed to stabilize the market. These included ending cost-sharing reduction payments to insurers, money that was passed along to qualifying beneficiaries in lower deductibles and out-of-pocket costs; eliminating the individual mandate for health insurance; and allowing for short-term and association health plans that get around ACA mandates for essential coverage.

But CMS said the recent move to freeze payments is based on conflicting court decisions, and it wants to see a quick resolution.

"We were disappointed by the court's recent ruling," CMS Administrator Seema Verma said. "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." 

The risk adjustment transfer amounts for 2017 are $10.4 billion, which includes transfers across catastrophic, small group, and individual non-catastrophic risk pools, according to CMS. 

At issue is the methodology CMS uses to calculate risk adjustment payments.

In January, a federal court in Massachusetts sided with the agency's use of a statewide average premiums in its risk adjustment methodology.

But in February, a  federal court in New Mexico invalidated the use of the statewide average premium in the risk adjustment formula.

CMS filed for a motion for reconsideration of the New Mexico ruling, with a hearing held on June 21. CMS said it is awaiting the result of that motion.

 "We agree that a quick resolution is needed to avoid greater harm to the individual and small group markets," AHIP said.