CMS has issued a Final Rule to adopt the risk adjustment methodology for the 2017 benefit year. The rule was issued without a notice and comment period and will become effective upon publication in the federal register. The risk adjustment program is a premium stabilization program established by Congress in section 1343 of the Affordable Care Act. The program transfers funds from plans with low-risk enrollees to plans with high-risk enrollees, in order to mitigate adverse selection. CMS has repeatedly stated that the federally certified risk adjustment methodology “is based on the premise that premiums for this market should reflect the differences in plan benefits, quality, and efficiency – not the health status of the enrolled population.” On July 7, 2018 CMS announced that risk adjustment transfers would be suspended for the 2017 benefit year in light of an adverse ruling by the Federal District Court for the District of New Mexico (HL Pulse summary here) that vacated the methodology for the 2014, 2015, 2016, and 2017 benefit years. An HHS Motion for Reconsideration remains pending with the District Court.
The decision to suspend the risk adjustment collections and payments for 2017 has been criticized by commentators and issuers. Administrator Seema Verma acknowledged issuers’ frustration with the decision to suspend risk adjustment payments in a press release, stating:
“Issuers that had expressed concerns about having to withdraw from markets or becoming insolvent should be assured by our actions today. Alleviating concerns in the market helps to protect consumer choices.”
CMS finalized the risk adjustment methodology for the 2017 benefit year in the Notice of Benefit and Payment Parameters for 2017 final rule (2017 Payment Notice), which was published in the March 8, 2016 Federal Register. The final rule does not make any changes to the methodology finalized in the 2017 Payment Notice, but provides additional explanation to alleviate the Court’s concerns. In support of implementing the risk adjustment program in a budget neutral manner, CMS explains that the agency does not have the authority to require states to spend funds on the risk adjustment program. Additionally, the ACA neither requires the program to be budget neutral, nor prohibits it, and does not authorize or appropriate funding for the program. Therefore, implementing the program in a budget neutral manner provides certainty and predictability to issuers. The use of the statewide average premium in the methodology encourages issuers to price their premiums to average risk and disincentives gaming.
This final rule will allow CMS to make risk adjustment payments for the 2017 benefit year. CMS will collect 2017 benefit year charges in the September 2018 payment cycle and begin making payments in the October 2018 payment cycle. CMS intends to issue a notice of proposed rulemaking to address the 2018 benefit year risk adjustment methodology.