Freezing risk payments could upend stabilizing Obamacare markets, experts say

President Donald Trump arrives to speak at a rally at the Four Seasons Arena at Montana ExpoPark, Thursday, July 5, 2018, in Great Falls, Mont., in support of Rep. Greg Gianforte, R-Mont., and GOP Senate candidate Matt Rosendale. (AP Photo/Carolyn Kaster)

The Trump administration will freeze key payments to insurers meant to stabilize markets established by the Affordable Care Act (ACA), officials said Saturday, blaming the move on a recent federal court ruling, but questions have been raised by health care policy experts and critics about the reasoning behind the move and its repercussions.

“As a result of this litigation, billions of dollars in risk adjustment payments and collections are now on hold,” Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma said in a statement Saturday, insisting that officials are “disappointed” in the ruling and CMS “hopes for a prompt resolution.”

According to William Custer, director of the Center for Health Services Research at Georgia State University, the litigation involved the method of calculation, not the risk adjustment program itself, which requires no taxpayer dollars and is similar to the system used by Medicare.

“Risk adjustment has been a part of almost every health reform proposal since the 1960s,” he said. “It’s a way to make the insurance market work more efficiently.”

The risk adjustment payments are meant to encourage companies to cover sicker patients by mitigating the losses they incur. Under the ACA, insurers pay into a pool and CMS redistributes some money to the ones that ended up with more expensive patients, but withdrawing those payments could mean higher premiums for customers and higher risks for insurers.

“This will probably cause more turmoil,” said Tim McBride, director of the Center for Health Economics and Policy at the Institute for Public Health at Washington University in St. Louis.

Democrats and former Obama administration officials have a more fatalistic view.

“This is aggressive and needless sabotage of the ACA,” tweeted former CMS Acting Administrator Andy Slavitt. “Impact likely chaos.”

CMS has always calculated the payment based on the average statewide premium, believing it was necessary to keep the program budget neutral. Co-op insurers in Massachusetts and New Mexico sued, arguing in part that is unfair and it should instead be based on the company’s average premium.

In January, a federal district court judge in Massachusetts ruled in favor of CMS. In February, though, New Mexico District Judge James Browning sided with New Mexico Health Connections, finding that the formula used from 2014 to 2018 must be set aside.

Browning ruled that the decision to base payments on the state’s average premium was “arbitrary and capricious” because the law did not require the program be budget neutral, making the formula invalid unless CMS can provide sufficient justification for that choice. CMS has so far failed to do so, but it has asked the court to reconsider.

At a hearing in late June, Browning indicated he is not likely to alter his judgment, but he will not issue a final ruling until later in the summer. CMS has now concluded it is prohibited from collecting or making payments under its current methodology.

Freezing the payments will primarily affect payouts for 2017 and 2018, which would have been made in fall 2018 and 2019, respectively. The rule for 2019 includes an extensive explanation for basing transfers on statewide average premiums, but that may not be enough to convince insurers not to raise rates due to the uncertainty.

“Without a quick resolution to this matter, this action will significantly increase 2019 premiums for millions of individuals and small business owners and could result in far fewer health plan choices. It will undermine Americans’ access to affordable coverage, particularly for those who need medical care the most,” said Scott Serota, president and CEO of the Blue Cross Blue Shield Association, calling on CMS to “use all legal avenues” to make the payments.

America’s Health Insurance Plans, a trade group representing insurers, said it was “very discouraged” by the decision and called on CMS to reevaluate it.

“This decision comes at a critical time when insurance providers are developing premiums for 2019 and states are reviewing rates. This decision will have serious consequences for millions of consumers who get their coverage through small businesses or buy coverage on their own,” the organization said in a statement.

Custer said it is too soon to predict how insurers will respond and the administration could face legal challenges for not making payments mandated by the law. Some may pull out of markets and others may charge more to cover the added risks.

“The insurers and the market would suffer a blow but would cope with the loss of these payments,” he said.

McBride suggested it could exacerbate the divide between urban areas where the risk pool is large enough to keep costs down and rural counties where insurers already struggled to turn a profit before the Trump administration’s most recent actions.

“Everything that’s done causes disruption in the marketplaces and probably makes insurance plans nervous about staying in,” he said.

Critics saw the CMS announcement as the latest in a long line of efforts to sabotage the ACA by Trump, beginning with an executive order signed by the president hours after taking office last January aimed at “minimizing the economic burden” of compliance with the law.

“The Trump administration just keeps pushing their destructive repeal-and-sabotage agenda, no matter the cost to the American people,” said Brad Woodhouse, executive director of pro-ACA group Protect Our Care, in a statement. “Following through with this latest act of sabotage could raise rates for all consumers even more — on top of the rate hikes they have already caused — and is without a doubt an escalation in the Trump administration’s war on people with pre-existing conditions.”

Some health care experts have disputed the CMS stance that freezing the payments was a required response to Browning’s ruling.

“The truth is the Trump administration has lots of options. It’s just choosing not to exercise them,” Nicholas Bagley, a law professor at the University of Michigan, wrote on the Incidental Economist blog.

Bagley detailed a number of those alternatives, including seeking a stay until the case is heard on appeal or simply issuing an interim final rule for 2014 to 2018 that included the same explanation used in the 2019 rule.

The Justice Department could also have argued the New Mexico judge’s injunction should not apply nationwide, as it has in other cases where a single district judge has blocked a Trump administration policy. CMS could then continue making payments in the other 49 states.

“The key thing to watch is whether the Trump administration uses the legal dispute as an excuse to cancel payments to insurers and create chaos, or instead tries to work through the legal process and make the payments as planned,” said Larry Levitt, senior vice president of the Kaiser Family Foundation, on Twitter.

The administration previously halted cost-sharing reduction payments intended to help insurers cover high-risk patients. The Justice Department also recently joined several states in a lawsuit asserting that the provision that protects coverage for pre-existing conditions is unconstitutional.

Through executive orders, President Trump has taken steps to make it easier for people to join association health plans and short-term plans that do not provide the comprehensive coverage required by the ACA. Experts warn those less expensive plans would appeal to healthier patients, leaving only the sick and expensive in the markets and driving up their rates.

Those defending the freeze in risk adjustment payments argue the Trump administration is merely complying with Browning’s ruling. As with other changes in health care policy implemented by the Trump administration, they say the effort is not aimed at sabotaging the system but correcting flaws and inequities Democrats created.

“If the Trump administration wanted to use the risk adjustment ruling to ‘sabotage’ Obamacare, as people like Slavitt claim, it would have halted the program immediately after Browning issued his order in February,” wrote Christopher Jacobs, CEO of Juniper Research Group, in the Federalist.

Jacobs blamed Slavitt and his Obama era colleagues for issuing the rule Browning deemed arbitrary in the first place. He also pointed out two previous cases where Trump HHS interim final rules have been rejected in court.

The decision to halt risk adjustment payments came as Democratic activists mobilized for a public push against President Trump’s Supreme Court nominee. Trump will not make his announcement until Monday night, but supporters of the ACA are sure to ask any nominee what they would do if the lawsuit over pre-existing conditions reaches the high court.

Protect Our Care had events scheduled in seven states Monday, and it has already created an ad to run in D.C. and the home states of two key Republican senators warning against a nominee who would support eliminating protections for people with pre-existing conditions.

As a candidate, Trump indicated he would appoint justices who would oppose the law, pointing to Chief Justice John Roberts siding with liberal justices to uphold it as an example of what he intended to avoid.

With the midterm elections approaching, Democrats and their supporters are also ratcheting up pressure on Republican incumbents who supported repealing the ACA, a reversal of the dynamics of past election cycles that reflects improved public opinion of the law.

Democrats expect a boost when higher premiums are finalized for 2019 in the weeks before the election, but Gary Nordlinger, a political media consultant and a professor at the Graduate School of Political Management at George Washington University, doubts health care will be a deciding factor for many voters. Those who feel strongly about the ACA have likely already chosen a side, and most patients are insulated from the sticker shock of premium increases by subsidies.

“I don’t think it’s nearly as important as whether you love Donald Trump or hate Donald Trump,” Nordlinger said. “I think that will be the number one factor in this election… If you’re on Obamacare and you like Obamacare, you already dislike the Republicans for trying to dismantle it.”

Since the individual mandate was repealed in the tax reform bill, President Trump has often declared Obamacare dead, but the markets are very much alive. Overall enrollment has fallen since 2016, but there were still 10.6 million customers buying plans in the marketplaces for 2018, with 9.2 million qualifying for some federal assistance.

Despite the latest concerns from the insurance industry, the individual markets are shaping up to be more stable in 2019 than in recent years. As insurers submit plans for next year, more companies are joining markets, some are returning to states they left, and rate increases in many areas have slowed to single digits.

According to Custer, insurance companies have learned enough to navigate the economics of the marketplaces over the last five years. Many are no longer facing losses for participating in them.

“This is not a new population to them,” he said. “Some of the initial demand has been met. So they feel comfortable with understanding what the risks are under the rules they thought would be in effect in 2019.”

Several insurance companies and state insurance commissioners have already attributed much of the proposed rise in premiums for 2019 to the Trump administration’s actions. Final rates could be lower as states and companies negotiate, or insurers could seek even higher premiums after this CMS decision.

“There were several layers of protections both for individuals and insurers until they stabilized the market,” Custer said. “What we’ve seen is piecemeal stripping of those measures.”

Instead of making Obamacare less popular, the result of Trump’s policy changes has been making it even more attractive to lower income patients, according to McBride. As they receive larger subsidies and fewer wealthier customers remain in the program, the growing cost is ultimately borne by taxpayers and the dwindling number of consumers who pay full price for premiums.

The result is a system that has proven far more resilient, structurally and politically, than its opponents anticipated.

“We’re learning that people really, really want this insurance product, and once they’re used to having it, it’s hard to take it away from them,” McBride said.

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