The Trump administration is expected to suspend an Affordable Care Act program that plays a key role in the health law’s insurance markets, a move that could deal a financial blow to many insurers that expect payments. The suspension of some payouts under the program, known as risk adjustment, could come in the wake of a recent decision by a federal judge in New Mexico, who ruled that part of its implementation was flawed and hadn’t been adequately justified by federal regulators, people familiar with the plans said.
First off: this is not the risk corridor program, which was temporary from the start and was recently dealt a blow by an appeals court. This is the risk adjustment program, which is a permanent part of Obamacare designed to prevent insurers from gaming the system by trying to attract low-risk customers. There’s a complicated formula involved that takes money away from insurers with low-risk populations and reimburses reinsurers who have high-risk populations. The net cost of the program is zero.
A couple of years ago an insurer in New Mexico complained that the formula was badly designed. The judge agreed, and remanded the case to the federal government to design a different formula. Under normal circumstances this would not be a big deal: the government would ask for a stay while it rejiggers the formula or perhaps files an appeal. Life would go on, and the worst that would happen is that the formula would get tweaked and some insurers would benefit slightly and others would be hurt. And in theory, this could still happen:
The expected suspension may draw second-guessing from insurers and supporters of the ACA. Timothy S. Jost, an emeritus professor at Washington and Lee University, said it appeared that federal officials might still have other legal options before suspending payments. Mr. Jost said federal regulators could issue a rule formally offering a justification for the risk-adjustment methodology’s use in past years, then ask the judge to consider that.
That’s adorable. But of course that’s not what Trump is going to do. Based on a very limited ruling from a single district judge in a single state, he apparently plans to suspend the entire program. Presumably he will then slow-walk any change to the formula or any appeal of the judge’s decision. It’s yet another way to cause some heartburn for any insurer who has the gall to continue offering policies under Obamacare:
[Suspension] could be a financial blow to those insurers that are expecting payments this fall based on 2017 plans, and potentially for those that expected payments in the fall of 2019 based on their 2018 business. It would rattle those insurers if a suspension occurs, said Larry Levitt, a senior vice president at Kaiser Family Foundation. For insurers expecting payments, abruptly suspending them “would be a big hit to their financial position,” said Deep Banerjee, an analyst with S&P Global Ratings. Estimates of the next round of payouts had already been entered in many insurers’ books as receivables because they are related to 2017 business, he said.
There’s no reason for any of this, which is probably why Trump likes it so much. It’s a message to insurers that he doesn’t care if Obamacare is getting more popular all the time. He’s going to continue messing with them in any way possible, regardless of whether there’s any reason for it. Only if they drop out of Obamacare will they be left alone.
UPDATE: CMS has issued a statement in response to the Journal story. “CMS is seeking a quick resolution to the legal issues raised,” they say, not entirely believably. Basically, they point out that (a) the current formula is the Obama administration’s fault, and (b) even though the New Mexico ruling was handed down in February, CMS is still puttering around asking the court to reconsider its decision. They don’t appear to be in any big hurry, and they’re still promising that guidance on other issues will be issued shortly.