No Longer In Suspense: CMS Issues Final Rule Announcing That Risk Adjustment Program Transfers For 2017 Will Be Distributed In September

Author:Mr Ken Yood and Samuel T. Gilkeson
Profession:Sheppard Mullin Richter & Hampton

The Final Rule. In a Final Rule posted by CMS last Tuesday, July 24, 2018, CMS announced that $10.4 billion in "risk adjustment transfers" ("Risk Transfers") for benefit year 2017 (as calculated pursuant to the Affordable Care Act's Risk Adjustment Program (the "Risk Program")) would be distributed to eligible exchange-participating insurers in September, 2018. The Final Rule adopts the previously published methodology for the 2017 benefit year with additional explanation. CMS says that it intends to issue a new proposed rule on the risk adjustment methodology for the 2018 benefit year.

Why was the Final Rule met with an audible sigh of relief from a multitude of Affordable Care Act ("ACA") stakeholders? Just two weeks ago it looked like the Risk Transfers, which many consider crucial to the stability of the ACA, the exchanges, and eligible exchange-participating insurers, might not be made at all.

The Suspension. On July 9, 2018, Press Release, CMS announced that the Risk Transfers, which were originally intended for distribution this fall, were being suspended until the resolution of pending appeals to a February 28, 2018 ruling (the "NM Ruling") out of the United States District Court for the District of New Mexico (N.M. Health Connections v. United States Department of Health and Human Services, et al., No. 16-0878, D. N.M., 2018 U.S. Dist. LEXIS 32908). According to the NM Ruling, the Risk Program's "risk adjustment transfer formula" (the "Risk Formula") that is used to calculate Risk Program transfer amounts - and, in particular, CMS's use of the statewide average premium as a part of the Risk Formula - was "arbitrary and capricious." Therefore, the District Court vacated the use of the Risk Formula for benefit years 2014 through 2018.

In contrast to CMS's "we have no choice" position, numerous stakeholders asserted that CMS's suspension of the Risk Transfers was another example of the Trump Administration's efforts to administratively cripple the ACA without the participation of the Legislative Branch. This belief was, in significant part, based upon the following:

The suspension was avoidable. On January 18, 2018, approximately one month prior to the issuance of the NM Ruling, the United States District Court for the District of Massachusetts (Minuteman Health Inc. v. United States Department of Health and Human Services, et al., No. 16-11570, D. Mass., 2018 U.S. Dist. LEXIS 14727) ruled that CMS acted within its authority in...

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