HHS to appeal New Mexico court's risk adjustment ruling

HHS will appeal a New Mexico judge's ruling that prompted the agency to freeze risk adjustment payments earlier this year. (Getty/outline205)

The legal fight over Affordable Care Act risk adjustment calculations wages on.

The Department of Health and Human Services (HHS) filed its notice to appeal a New Mexico district judge's ruling that the agency’s risk adjustment formula was “arbitrary and capricious.” The agency filed a notice with the U.S. District Court of New Mexico on Friday that it will appeal the judge’s ruling to the U.S. Court of Appeals for the Tenth Circuit.

U.S. District Judge James Browning handed down his initial decision in February, ruling that HHS failed to create the appropriate formulas because it was operating on the assumption that it needed to develop a budget-neutral approach. That decision was a notable victory for New Mexico Health Connections, a CO-OP insurer that argued HHS’ formula favored larger payers on the exchange by basing its calculations on an average of state premiums.

Risk adjustment payments, created under the ACA, were established as a way to prevent insurers from seeking out lower-risk enrollees. The provision transfers fund from plans with lower-risk enrollees to plans with higher-risk enrollees.

RELATED: New Mexico judge reaffirms risk adjustment ruling, casting uncertainty over future payments

But Browning’s February ruling kicked off a series of events in which HHS requested a reconsideration and then later froze $10.4 billion in payments in July while waiting for that decision. Some saw the move as another attempt by the Trump administration to sabotage the ACA markets, but weeks later, the Centers for Medicare & Medicaid Services (CMS) unfroze the payments and Browning reaffirmed his decision in October.

Meanwhile, earlier this week CMS finalized its risk adjustment payment rule for benefit year 2018, incorporating additional context about its decision to use state-based average premiums. CMS Administrator Seema Verma said the program is important to give insurers “the confidence they need to continue participating in the markets.”

RELATED: CMS finalizes risk adjustment rule for benefit year 2018

Insurers like Blue Cross Blue Shield—whose plans would have lost hundreds of millions of dollars if the payments remained frozen—supported the rulemaking, as did America’s Health Insurance Plans.