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New Mexico lawsuit puts ‘Obamacare’ provision on chopping block

July 15, 2018

A decision by the federal government this month to suspend risk adjustment payments to health insurance companies is either a hopeful sign or overkill, depending on your view of health care.

The Centers for Medicare & Medicaid Services on July 7 suspended the transfer of $10.4 billion between insurance carriers nationwide for the 2017 plan year, a practice known as risk adjustment. A part of the Affordable Care Act, or “Obamacare,” risk adjustment payments transfer a portion of the premiums paid to insurance companies with relatively healthy clients to those with not-so-healthy clients.

It’s meant to encourage innovation in health care and discourage companies from cherry-picking the healthiest customers. Individual insurance providers can be liable for, or the recipients of, millions of dollars each year.

Suspending risk adjustment payments does not mean that most policyholders will pay more for health coverage, but it may further undermine the Affordable Care Act.

“We’re talking about a small sliver of the population,” said Larry Levitt, co-executive director of the Kaiser Family Foundation Program for the Study of Health Reform and Private Insurance. “None of this affects people who get insurance through a large employer or Medicare or Medicaid. The people that are vulnerable are middle-class people who buy insurance on their own.”

The Affordable Care Act, enacted in March 2010 under the Obama administration, was meant to make affordable health insurance available to more Americans.

Suspending the risk payments results from a February ruling in a case filed two years ago in U.S. District Court in Albuquerque. The lawsuit, by New Mexico Health Connections, challenged the formula the Centers for Medicare & Medicaid Services use to determine the payment amounts.

In February, U.S. District Judge James O. Browning, while dismissing some claims, agreed with Health Connections that the government needed to justify its risk payment formula. The government asked Browning to reconsider. He heard arguments June 21 and a ruling could come any time.

The president of Presbyterian Health Plan, Brandon Fryar, in a prepared statement, said the insurance carrier is evaluating the July 7 decision, but “we do not believe it will impact our operations extensively.”

Risk adjustment payments are neither a new concept nor particularly controversial. They are one of three programs in the act, and the only permanent one, intended to distribute the burden of covering the highest-risk patients among insurers.

For example, Christus Health Plan, with 2,200 New Mexicans enrolled, was scheduled to pay $7.4 million for 2017 in risk adjustment payments. Conversely, California-based Molina Healthcare, which provided coverage for 224,000 New Mexico residents, was due $5.14 million.

Health Connections, in business since 2013, argued the formula, based on state average premiums, favored large, established insurance companies over smaller, innovative carriers. Health Connections covers about 44,000 individuals.

The company in its lawsuit didn’t dispute the mandate for risk adjustment payments. It argued the formula was “arbitrary and capricious,” according to its complaint in federal court.

“The flaws in [Center for Medicaid & Medicare’s] formula penalize [New Mexico Health Connections] for offering low premium, high quality plans and reward its competitors, like the market-dominating [Blue Cross Blue Shield of New Mexico], for keeping their prices high — an absurd distortion of Congress’s clear intent to create an affordable, competitive insurance marketplace,” Health Connections’ attorney, Nancy R. Long, wrote in the original complaint.

The result, said Health Connections founder Dr. Martin Hickey, is that 19 of 23 Consumer Oriented and Operated Plans, or CO-OPs, nationwide were forced out of business. CO-OPs like Health Connections were created by the Affordable Care Act and provided government grants and loans to get started.

The CO-OPs were intended to create innovative methods of reducing health care costs and spur competition.

“The main distinguishing factor written into the [Health Connections] grant was intensive medical management to better the health of the members,” Hickey said. “We knew a lot of people joining us would have pent-up medical demands; most would not have had insurance or access to health care.”

An expert in health care law described the government’s decision to suspend risk payments as an overreaction, and not surprising in light of the Trump administration’s stated goal of dismantling the Affordable Care Act.

In the wake of Browning’s February ruling, the government had several options, wrote Nicholas Bagley, a University of Michigan law professor. He said it could have adopted a rule that addressed the judge’s concerns.

Second, it could have sought a stay of the judge’s order while it prepared an appeal. Finally, the government might have narrowly interpreted the order to apply only to New Mexico Health Connections, or any New Mexico insurer, and acted accordingly, Bagley wrote.

Levitt, of Kaiser Family Foundation, agreed. “It really comes down to whether the Trump administration had to respond in such an extreme manner to this court case,” he said. “Generally, I think the answer is no. The administration had options at its disposal that would cause less confusion and uncertainty for insurers than halting the program entirely.”

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