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ACA Risk-Adjustment Payments Unfrozen

Analysis  |  By Steven Porter  
   July 25, 2018

With a final rule, CMS restarted the permanent program it had halted over a federal judge's ruling.

Two-and-a-half weeks of heightened uncertainty for insurers came to a close Tuesday evening, when the Centers for Medicare & Medicaid Services announced a final rule to resume risk-adjustment payments under the Affordable Care Act for the 2017 benefit year.

After halting the program on Saturday, July 7, the agency said Tuesday that it issued the final rule because it determined "immediate action" is "imperative to maintain stability and predictability in the individual and small group health insurance markets."

Insurers had warned that putting the payments in limbo could prompt premium hikes for the 2019 benefit year.

Resuming the financial transfers—which amount to billions of dollars for the 2017 benefit year alone—in this way should satisfy the qualms of a federal judge in New Mexico who ruled in February that the government's methodology for calculating risk-adjustment payments was illegal insofar as it relied on statewide average premiums, the agency said.

"This rule will restore operation of the risk adjustment program, and mitigate some of the uncertainty caused by the New Mexico litigation," CMS Administrator Seema Verma said in a statement

Related: Uncertainty Reigns After $10B in ACA Risk Adjustments Frozen

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Related: Risk-Adjustments Freeze Would Hit Some Insurers Harder Than Others

"Issuers that had expressed concerns about having to withdraw from markets or becoming insolvent should be assured by our actions today," she added. "Alleviating concerns in the market helps to protect consumer choices."

America's Health Insurance Plans (AHIP) President and CEO Matt Eyles commended the Trump administration for its "swift action," saying the move does, in fact, provide stability and predictability in the run-up to the 2019 benefit year.

"By quickly resolving the uncertainty regarding risk adjustment transfers, the Administration has taken an important step to ensuring more affordable coverage choices are available for all Americans, including high-need patients and those with pre-existing conditions," Eyles said in a statement Wednesday.

Frederick Isasi, executive director of Families USA, expressed a sense of relief in the news.

"Without risk adjustment in place, plans will have a strong financial incentive to cherry-pick patients who cost less to insure and put up as many barriers as possible for people with preexisting conditions and others with high health care costs," Isasi said in a statement.

Although several benefit years were affected by the judge's order, the final rule does not apply to all of them in the same ways:

  • 2014-2018: The judge's ruling vacated the risk-adjustment methodology for benefit years 2014 through 2018, according to the final rule released Tuesday.
  • 2017: The rule resumes the payments for the 2017 benefit year. It adopts the previous methodology, "with an additional explanation regarding the use of statewide average premium and budget neutral nature of the program," the rule states.
  • 2018: The final rule includes an announcement that CMS intends to solicit comments on future rulemaking regarding the CMS risk-adjustment methodology for the 2018 benefit year.
  • 2019: The agency has already sought comment on its draft payment notice for the 2019 benefit year and thereafter. "We finalized that approach as proposed in the final 2019 Payment Notice published on April 17, 2018," the CMS announcement said.

Although some critics saw the decision to freeze risk-adjustment payments as another act of "sabotage" directed at the ACA, others suggested the panic could be overblown. Even those in the latter group, however, questioned why CMS would halt the entire program, even temporarily, since the New Mexico judge's decision contradicted the opinion of another federal judge in Massachusetts.

"It's a little puzzling why, with the conflicting court decisions, they decided now that they can't make the payments any longer," Robert H. Iseman, JD, partner with the Rivkin Radler law firm in Albany, New York, told HealthLeaders Media earlier this month. "There must be a line of reasoning that led them to see the New Mexico decision as more authoritative, but they have not said what that might be."

The agency had signaled last week that it was at least considering the possibility of reworking the risk-adjustment methodology as a means to resume the payments, as HealthLeaders Media reported.

The move comes as AHIP and the Blue Cross Blue Shield Association urged the judge in New Mexico to alter his February ruling. The judge is expected to weigh in on the matter again by the end of the summer.

Editor's note: This story has been updated to include a statement from AHIP President and CEO Matt Eyles and Families USA Executive Director Frederick Isasi.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


The final rule applies to the 2017 benefit year only. Additional rulemaking is underway for other years.

The move affects billions of dollars flowing from insurers with lower-risk beneficiaries to those serving higher-risk groups.

The program was designed as a permanent fixture of the ACA, which the Trump administration has derided.

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