CMS issues proposed rule justifying risk adjustment methodology

A stethoscope and paper money.
CMS says the rule must pass to preserve a certain degree of stability in the individual and small-group markets. (Getty Images/utah778)

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule on Wednesday to adopt the risk adjustment methodology previously established for the 2018 plan year.

The methodology, which uses the average premium statewide, was vacated by the U.S. District Court for the District of New Mexico in February. CMS requested the court reconsider its ruling; it has not issued a new decision yet.

"The rule lays out that justification more clearly in a way that should address the court's concerns and means that risk adjustment payments for 2018 should not be at risk because of the lawsuit," said Katie Keith, a health reform researcher at Georgetown University and principal at Keith Policy Solutions.

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The budget-neutral methodology will make it less likely that insurers "engage in risk-avoidance techniques such as designing or marketing their plans in ways that tend to attract healthier individuals, who cost less to insure," the new rule (PDF) says.

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“Today’s proposed rule continues our effort to help stabilize the individual and small group markets,” CMS Administrator Seema Verma said in a statement. “Our goal has been, and will continue to be, to stabilize the market and provide American consumers with more affordable health coverage options.” 

CMS suspended risk adjustment payments last month in response to the district court's decision, which found that the formula's budget-neutral approach was arbitrary and capricious. The agency resumed the payments within a matter of weeks after pushback from payers and providers.

If this administrative action isn't finalized, insurers could raise premiums in the individual and small-group markets and withdraw from certain regions this coming plan year, the rule says.

However, Keith said the court will likely find this explanation satisfactory. The judge's response is expected by Labor Day.