A small New Mexico health insurer is suing the Trump administration for restarting an Obamacare payment program that will require it to pay out millions of dollars to larger, more established insurers.
New Mexico Health Connections, a health insurance co-op, filed suit Monday in the U.S. District Court in Albuquerque on the grounds that the Trump administration didn’t follow rule-making procedures in setting up the program. It also is following up on a previous lawsuit saying that the formula used to calculate the payments is “arbitrary and capricious.”
If the program proceeds, NMHC will be required to pay out $5.6 million to the government. The funds will then be distributed to larger health insurers Blue Cross and Blue Shield of New Mexico and Molina Healthcare.
The payments, known as “risk adjustment,” are intended to reduce incentives for health insurers to try to bring in only healthy customers and avoid customers with pre-existing medical conditions that need ongoing treatment, such as cancer or diabetes. Insurers who have healthier customers chip into a fund to alleviate costs for those whose customers need more expensive medical services.
But the system backfired on smaller insurers, like NMHC, which is a co-op started under Obamacare intended to compete against larger private health insurance companies. Most of the 23 co-ops that were started under Obamacare have gone out of business because of the formula, with only four remaining in business today.
The co-op said in its lawsuit that the arrangement set up under the risk adjustment program has “severely undermined” its work to improve care and lower costs. The system, it wrote, “penalizes low-priced, efficient issuers in favor of their higher-cost competitors.”
NMHC had to raise premiums to make up for all of the funds it had to pay out under the risk adjustment program. In 2016, the company paid out $9 million. Earlier this year the co-op was sold to Evolent Health to make up for losses.
The co-op accused health agencies of “crushing the small, innovative new entrants,” rather than delivering on Obamacare’s intent to create competition through the program. “Rather than driving down prices for consumers, they are encouraging issuers to raise rates higher and higher and are punishing carriers like NMHC who are pursuing a low-price strategy to benefit their enrollees,” the suit reads.
NMHC says it is more likely to bring in sicker enrollees because of the services it offers, such as copayment-free generic medications for treat customers with chronic conditions.
The latest lawsuit is a follow-up to another court ruling reached in February that found the formula used to calculate the payments was flawed. The Centers for Medicare and Medicaid Services, part of the Department of Health and Human Services, had announced a few weeks ago that it was halting the risk adjustment program as a result.
That lawsuit had also been brought by NMHC, and CMS previously said that the government asked the court to reconsider its decision after a federal judge in Massachusetts made a contrary ruling. The payments, it said, would be suspended until “the litigation is resolved.”
A couple of weeks later, after Democrats, large insurers, and pro-Obamacare advocates accused the Trump administration of “sabotaging” healthcare, CMS said the risk adjustment program would proceed as planned. NMHC had been supportive of the suspension and objected to the Trump administration then posting the rules for the program without giving insurers a chance to weigh in.
