The dominant insurer on Maryland’s Health Benefits Exchange is crying foul over the Trump administration’s decision to halt certain payments required under the Affordable Care Act that are designed to compensate carriers with sicker-than-average customers. CareFirst BlueCross BlueShield officials say the move jeopardizes the viability of their business on the exchange and could lead to higher rates. The other insurer on the exchange, Kaiser Permanente, offered a somewhat less drastic reaction but also criticized the move as harming market stability. In coverage nationwide, the move is being viewed as yet another effort by the Trump administration to cripple Obamacare after it had already suspended cost-sharing payments to insurance companies and, along with the Republican-controlled Congress, eliminated the requirement that individuals buy coverage.
But the story is a bit more complicated than that.
The reason the Trump administration cited for halting the payments is a federal court decision in New Mexico that found part of the method by which “risk adjustment” payments are calculated was adopted in an arbitrary and capricious manner by the Centers for Medicare and Medicaid Services (CMS) and was hence invalid. Another case in Massachusetts found the opposite, and the administration is now trying to get the courts to resolve those conflicting views. True enough, it may well have been happy to err on the side of destabilizing Obamacare, but that doesn’t change the fact that the U.S. District Court judge in New Mexico, Thomas Browning, has a point. The risk adjustment program is flawed, and has been since the Obama administration.
The lawsuits in New Mexico and Massachusetts were brought not by opponents of the ACA but by the very kinds of health cooperatives the law was supposed to foster as competitors to traditional insurance. Maryland had one, too, Evergreen Health, which had also sued over the risk adjustment payments before it — like the vast majority of co-ops nationally — went out of business. Evergreen’s complaint was essentially the same as those brought by Minuteman Health in Massachusetts and New Mexico Health Connections. They argued that the way the federal government ran the risk adjustment program was like Robin Hood in reverse: It took from new, less deep-pocketed entrants in the insurance marketplace and gave to behemoths like CareFirst.
Risk adjustment is one of the mechanisms in the ACA that’s designed to compensate for the prohibition on companies denying coverage to those with pre-existing conditions. One of the concerns among those crafting the law was that companies might cherry pick customers to get more of the healthy ones (from which they could expect to profit) and fewer of the sick ones (who would cost much more money). Risk adjustment was designed to counteract that by assessing the health characteristics of a carrier’s customers in any given year and take money from those with healther-than-average clients and give it to companies with sicker-than-average ones.
But how CMS makes that judgment matters enormously, and Evergreen, Minuteman and New Mexico Health Connections all argued that the government’s methodology tended to favor larger, more established companies over smaller start-ups. To wit, before it went out of business, the federal government required Evergreen to pay $24 million in risk adjustments in 2016, more than a quarter of its total premium revenue from the year before. The story was similar in New Mexico, where Health Connections was required to pay out the equivalent of 21 percent of its revenues one year and 15 percent the next. Minuteman had to pay $25 million in risk adjustments in 2016. In general, according to CMS data, the biggest winners from the program were Blue Cross and Blue Shield plans.
The point here is not that companies like CareFirst don’t need help to keep participating in the ACA exchanges. They do. Republicans in Congress and now the White House have been working to sabotage the ACA for years, and they have both prevented it from working as designed and blocked any efforts to fix its shortcomings, leading to losses for many carriers and ever higher costs for consumers. And the point isn’t to defend the Trump administration’s actions, either. The abrupt end of these payments — more than $10 billion nationally — will mean only one thing in the short term: higher premiums.
But risk adjustment never worked correctly, and if this latest upheaval led to a sane system that at least leveled the playing field for the few remaining smaller players in the ACA marketplace, that would be an improvement. With the Trump administration in charge, though, we’re not holding our breath.