The Centers for Medicare & Medicaid Services (CMS) finalized a rule Friday that reissues the risk adjustment methodology previously established for the 2018 benefit year. Despite the fact litigation is pending on the issue, the final rule will allow government to continue normal operations of the risk adjustment program for 2018 and give insurers confidence to continue participating in the markets, said CMS Administrator Seema Verma.

CMS issued a final rule Friday that reissues the federal government’s risk adjustment methodology previously established for the 2018 benefit year.

The rule will allow the agency to continue normal operations of the risk adjustment program for the 2018 benefit year after a federal judge vacated the use of statewide average premium under the Department of Health & Human Services (HHS) methodology earlier this year.

Under the Affordable Care Act (ACA), the risk adjustment program is meant to compensate insurers in the individual and small group markets who have sicker enrollees and therefore have higher medical costs. The risk adjustment program transfers funds from plans with relatively low-risk enrollees to plans that have higher-risk enrollees. The formula should spread the financial risk across the markets and allow insurers to compete with one another based on price, efficiency, and service quality.

 “Today’s final rule continues our commitment to provide certainty regarding this important program, to give insurers the confidence they need to continue participating in the markets, and ultimately, to guarantee that consumers have access to better coverage options,” CMS Administrator Seema Verma said in an announcement.

Furthermore, she said that although litigation is still pending, insurer participation on increased for the 2019 benefit year, showing they have improved confidence in the markets.

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The final rule is the latest in an ongoing saga over the risk adjustment payments. Last February a U.S. District Court vacated the use of the statewide average premium in the payment transfer formula for the 2014-2018 benefit years. In response to the court’s ruling, the agency temporarily froze payments in July, but weeks later reversed its decision under pressure from stakeholders who worried insurers would have to withdraw from the markets without the payments. That reversal was part of an emergency final rule that included the existing methodology to resume payments for the 2017 benefit year. The agency proposed a similar rule for the 2018 payments.

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The court’s decision was good news for New Mexico Health Connections, a consumer operated and oriented (cooperative) health plan, which claimed in a 2016 lawsuit that the way the federal government implemented the risk adjustment program “brutally penalizes new, innovative, low-cost insurance companies and flouts Congress’ intent in enacting the ACA.” The judge also agreed that HHS failed to justify why it believed the program had to be budget-neutral because there was nothing in the ACA that required it. The coop has since filed a second lawsuit that challenges CMS’ move to issue an emergency regulation for the risk adjustment program for 2017. 

 “Although the litigation is still pending, we are issuing this final rule to preserve the consistent, ongoing operation of the Risk Adjustment program for the 2018 benefit year,” Verma said in the announcement.

She said by keeping the risk adjustment in place, premiums can reflect differences in the scope of coverage and other plan factors, but not differences in the underlying health status of enrollees.