New Mexico Carrier Sues Over Feds' ACA Risk-Adjustment Move

CMS officials argued, in an introduction to draft regulations, that adding an explanation to the old regulations should be enough to overcome the effects of the February court judgment, because the court blocked use of the risk-transfer formula based on the argument that CMS had not explained why it had adopted that particular formula.

The New Suit

New Mexico Health Connections is a carrier that has been required to pay a large percentage of its individual and small-group premium revenue into the risk-adjustment program.

In the motion for immediate action against the emergency rule, the insurer says CMS has violated the federal Administrative Procedure Act, and the U.S. Constitution, by imposing a regulation that requires insurers to pay millions of dollars into the risk-adjustment program without complying with legal requirements to first seek public comments on that requirement.

Marlene Baca, the chief executive officer of New Mexico Health Connections, said in a statement about the legal actions that the company wants to ensure that HHS complies with the Administrative Procedure Act.

"We contend that the emergency regulation continues a risk adjustment formula that disadvantages small, new, and lower-priced health plans in favor of their larger, more expensive competitors," Baca said. "The CMS formula does not, as it is supposed to, transfer funds equitably from health plans with healthy enrollees to health plans with sick enrollees. We support the concept of fair and equitable risk adjustment and we will continue to fight to protect consumers and provide fair insurance rates."

New Mexico Health Connections says that its individual health enrollees had an average risk score that was slightly above the state average, and that the small-group enrollees had an average risk score that was 1% below the state average.

The company is facing big risk-adjustment bills mainly because its average small-group premiums were 22% below the state average, the company says.

"CMS is exacting this unfair financial penalty against Health Connections for lowering prices to small businesses and consumers and making health care more affordable for New Mexicans," the company says.

The company says it has been working to challenge the risk-adjustment formula in court since the summer of 2016.

"Rather than use the court's ruling as an opportunity to engage with small plans like Health Connections and reform their program, CMS instead ignored the court's ruling for five months and then issued a new regulation reusing the same formula without giving Health Connections and other members of the public a chance to be heard," the company says.

CMS has argued that a formula that let insurers use their own premiums to calculate risk-transfer payments could create risk-transfer funding shortfalls and would make the risk transfers more difficult for insurers to estimate in advance.

The agency has also argued that it has to have risk-adjustment rules in place now to persuade insurers to offer individual major medical plans in 2019. The individual major medical open enrollment period for 2019 is set to start Nov. 1.

— Read New Mexico Insurer Welcomes ACA Risk-Adjustment Freeze, on ThinkAdvisor.

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