CMS ends risk-adjustment freeze, releasing $10.4B to insurers

Seema Verma speaking at press conference
The CMS administrator said releasing the payments will alleviate concerns from insurers. (WhiteHouse.gov)

The Trump administration will release billions in risk-adjustment payments to insurers this fall, ending a relatively short-lived freeze that generated pushback from payers and providers alike.

“This rule will restore operation of the risk-adjustment program and mitigate some of the uncertainty caused by the New Mexico litigation,” CMS Administrator Seema Verma said in a statement. “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.”

The final rule (PDF), released by the Centers for Medicare & Medicaid Services (CMS) on Tuesday evening, maintains the same methodology for risk-adjustment transfers previously outlined by the agency, using statewide average premiums as part of the formula. CMS included an additional explanation in the rule on the formula.

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For the 2018 and 2019 benefit years, CMS will adjust statewide average premiums by 14% to account for an estimated proportion of administrative costs that do not vary with claims. The agency will not apply an adjustment to the 2017 plan payments "to protect the settled expectations of insurers" that have already calculated pricing and offering decisions based on the 2017 formula.

"Absent this administrative action, HHS would be unable in the coming months to collect charges or make payments to issuers for the 2017 benefit year," the rule states. "These amounts total billions of dollars, and failure to make the payments in a timely manner threatens to undermine the stability of the insurance markets."

RELATED: New Mexico Health Connections to appeal portions of risk adjustment ruling regardless of pending decision

CMS suspended the $10.4 billion in risk-adjustment payments earlier this month, citing a New Mexico court decision in February that vacated the use of statewide average premiums to calculate risk-adjustment payments. The agency asked the district court judge to reconsider his ruling, but that decision isn't expected until the end of August.

Most policy experts expected CMS to unfreeze the payments, and late last week the agency sent an interim rule to the Office of Management and Budget (OMB) for review.

Several insurers were quick to denounce the freeze. Physician and hospital groups like the American Hospital Association and the American Medical Association had also urged CMS to reinstate the payments in recent weeks.

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