CMS releases new risk adjustment amounts after factoring in validation

A signpost with the words Affordable Care Act
Insurers could owe the federal government under newly adjusted totals for the ACA's risk adjustment program. (Getty/kroach)

The Trump administration released changes to what Affordable Care Act insurers will receive or owe under the law's risk adjustment program to reflect new data validation. 

The Centers for Medicare & Medicaid Services released a report on Aug. 1 that details how data validation has affected the program's totals for 2018. The goal is to increase the accuracy of payments and collections for risk adjustment, which has been the subject of several lawsuits from insurers.

Risk adjustment pays ACA insurers with a sicker population and collects money from insurers with low-risk populations. The goal is to reduce incentives for insurers to ignore sicker customers.

In 2015 and 2016, CMS started a pilot program to validate the risk adjustment data sent in by insurers to ensure it was accurate. However, the validation data was not used to adjust the risk adjustment transfers for both of those years. Now the data will impact the risk adjustment amounts. 

The report says that the 2017 validation scores will be applied to the risk adjustment amounts that plans either owe or will receive for the 2018 coverage year. Under the new change, some insurers that initially were expected to receive a risk adjustment payment will now be required to pay into the program and vice versa.

RELATED: ACA risk adjustment ran 'smoothly' in 2018, CMS says

Overall, CMS was expected to receive more than $5 billion from insurers and dole out roughly $5 billion for 2018. The overall amount does not change, just the totals that some insurers will receive. 

For example, Harvard Pilgrim Health Care's plans in Connecticut were expected to owe $2.9 million but will now get a payment of nearly $400,000. On the other side, Cigna’s Colorado business was expected to get $9 million in risk adjustment money but will now owe $20 million.

Others will owe a lot less under the new adjustment. Kaiser Permanente’s California plans were originally expected to owe $392 million but now will owe $295 million, according to CMS’ report.

The newly adjusted amounts will be collected and distributed in the 2021 benefit year, CMS said in a May 31 memo to plans. 

"We have issued guidance as part of the federal rate filing instructions to provide states and issuers flexibility in terms of when these amounts will be considered for rate setting purposes," the agency's memo said.

The validation changes come as CMS has weathered several lawsuits from insurers over the years complaining about their risk adjustment amounts. A federal judge ruled last year that HHS’ risk adjustment formula was “arbitrary and capricious,” ruling in favor of a New Mexico insurer’s challenge to the agency. Another federal judge struck down a challenge from a Massachusetts insurer against the formula.