Maryland’s health insurance companies are concerned that a Trump administration decision to suspend payments that help to cover the costs of the sickest patients will further destabilize the market and could push them to seek even higher premiums on plans consumers already say are too expensive.
The Centers for Medicare & Medicaid Services announced over the weekend that it was freezing billions of dollars in so-called risk adjustment payments for plans under the Affordable Care Act, also known as Obamacare, because of a court decision earlier this year that deemed the formula for determining these payments unlawful.
The payments were designed to stop insurers from losing money on very sick patients, who cost the most to treat. The payments also were meant to try to prevent insurers from cherry-picking healthier patients to keep costs down.
Under the risk adjustment program, insurers with healthier patients pay those with sicker patients. About $10.4 billion was slated to be transferred last year.
Officials with CareFirst BlueCross BlueShield, one of two Maryland insurers that sell Affordable Care Act plans, said they need the payments to keep that part of their business afloat.
“The federal government’s decision to suspend payment transfers under the ACA’s risk adjustment program could have a significant impact on premiums and place an additional burden on people in the community who can least afford it,” CareFirst’s president and CEO, Brian Pieninck, said in a statement.
Officials with Kaiser Permanente, the state’s other insurer with Affordable Care Act plans, have raised concerns about the risk adjustment program but disagreed with the suspension of the payments.
“An effective risk adjustment program is crucial to the sound operation of a health insurance marketplace in which individuals, families and small businesses with health needs have access to more affordable, high-quality coverage,” said Bill Wehrle, Kaiser Permanente vice president of health insurance exchanges, in a statement. “It enables the country to move away from a market where plans compete to avoid covering or charge more to people with preexisting health conditions, to one where competition is based on quality, affordable care for everyone.”
While imperfect, the risk adjustment program “has helped promote market stability over the past five years,” Wehrle said.
Trump administration officials said they were forced to make the cuts after a federal court in New Mexico ruled in February that the formula for calculating risk adjustment could not use a statewide average premium. The CMS has appealed the decision, particularly because a Massachusetts court upheld such payments.
“We were disappointed by the court’s recent ruling,” CMS Administrator Seema Verma said in a statement. “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 suspension comes as insurance companies are hammering out rates for the next enrollment period. The Maryland Insurance Administration has a hearing scheduled for July 31.
“So much uncertainty put in the market at this point of time is very unnerving,” said Ritu Agarwal, senior associate dean of research at the University of Maryland Robert H. Smith School of Business, who follows the health care system.
She noted it is the latest action by the administration of President Donald J. Trump, which has weakened the landmark law that expanded healthcare for many more Americans.
The elimination of risk adjustment funds also comes as Maryland officials await a decision from CMS on another funding mechanism they believe would help stabilize the market and provide money to insurers to help pay for expensive patients.
State officials, with bipartisan support from both Gov. Larry Hogan and the General Assembly, asked the federal agency this spring for permission to establish a reinsurance program that would create a $462 million fund for insurers to cover the most expensive claims. The fund would be separate from the federal risk adjustment payments and could allow the insurers to reduce their requested rate increases by as much as 30 percent. The agency approved the application preliminarily and is in a public comment period
Insurance Commissioner Al Redmer Jr. said that as of now he doesn’t expect the latest decision to interrupt the state’s rate-setting process.
But CareFirst and Kaiser could ask to adjust their rates higher given the Trump administration’s decision. The insurers have requested average rate increases for 2019 that range from 18.5 percent to 91.4 percent, depending on the type of plan.
A professor who follows Obamacare said it is unclear if the payments’ suspension will result in higher premiums.
“We have to be very cautious. There is a need to analyze insurers case-by-case and account for their competitive landscapes,” said Tinglong Dai, an associate professor of operations management and business analytics at the Johns Hopkins University Carey Business School. “It is important to keep in mind that the original risk adjustment payments are budget-neutral such that for some insurers to win, other insurers have to lose. Cutting such payments achieves the opposite effect.”
The payments can be controversial, Dai said. Small insurers often complain about risk adjustment payments because they end up paying their larger competitors, who tend to have the sickest patients. In Maryland, Kaiser usually ends up paying CareFirst.
In 2016, Evergreen Health Cooperative sued the federal government over having to pay $24.2 million, which represented more than a quarter of its premium revenue, in such payments to CareFirst. Company officials argued that the charge would take a large portion of its reserves and threaten its long-term health.
“The problem with this mechanism, like any risk-adjusting strategy, is that it cannot perfectly adjust the risk,” Dai said. “People will always complain that the formula is unfair. The law of large numbers indicates small insurers suffer more often than large ones.”