CMS: We Will Make $10.4B in 2017 Risk-Adjustment Payments


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By Thomas Beaton

– CMS has issued a final rule that will allow the agency to disburse $10 billion in 2017 risk adjustment payments that had been in doubt due to a court ruling.  

To comply with the initial outcome of a New Mexico lawsuit contending the methodology used to calculate payments, the new final rule expands upon the reasoning behind the algorithm. CMS calculates payments using a statewide average premium to provide budget neutral payments and transfers funding accordingly to payers participating in the risk adjustment program.

“HHS chose to use statewide average premium and normalize the risk adjustment transfer formula to reflect state average factors so that each plan’s enrollment characteristics are compared to the state average and the total calculated payment amounts equal total calculated charges in each state market risk pool,” explains the final rule.

“Thus, each plan in the risk pool receives a risk adjustment payment or charge designed to compensate for risk for a plan with average risk in a budget neutral manner.”

CMS will now be able compensate payers with risk-adjustment payments for plan year 2017, said Administrator Seema Verma.

“This rule will restore operation of the risk adjustment program, and mitigate some of the uncertainty caused by the New Mexico litigation,” Verma said.  “Issuers that had expressed concerns about having to withdraw from markets or becoming insolvent should be assured by our actions today.  Alleviating concerns in the market helps to protect consumer choices.”    

The risk adjustment program is designed to keep participating payers from avoiding high-risk beneficiaries by financially rewarding payers with higher medical loss ratios (MLRs). The rule explains that payers will now receive these payments on October 22, 2018.

Reinstatement of the risk adjustment program will provide comforting news for payers that were about to lose significant amounts of money.

CMS’s summary report of the 2017 risk-adjustment program found that payers in the individual market would have missed out on $7 billion in payments without the program, while the small group market would lost $2 billion. BlueCross BlueShield payer organizations would have lost close to $2 billion under the freeze.

Activation of risk-adjustment payments are likely to help payers stabilize their spending and costs for the current year, but other federal programs like the risk corridor program may still keep payers on the hook for extremely high costs.