Risk-Adjustment Payments May Come at the Expense of the GOP

The health care follies continue on Capitol Hill, and the latest irony has little to do with the Uninsurance Guarantee Act (aka the American Health Care Act, TrumpCare, RyanCare). This one has to do with the only successful attempt by the Republican legislators to obstruct the Affordable Care Act (ACA), which may well come back and bite them.

The risk-adjustment payments included in the ACA were based on the assumption that, initially, health plans participating in the exchanges would be exposed financially with a surge of enrollment from Americans with chronic illnesses. Until the individual mandate (and its significant penalties) kicked in, the authors of the ACA understood that the healthy would need encouragement to join an exchange plan and stabilize the market. These payments were supposed to be made to insurers over the first 3 years of implementation of the ACA.

However, the Republican Party, led by Senator Marco Rubio and House Speaker John Boehner, pushed for a measure in the federal budget in 2014 that was largely successful in stunting the individual market that was being cultivated by ObamaCare. This budgetary provision required the risk-corridor payments to not have a negative effect on total spending. In other words, the Centers for Medicare and Medicaid Services (CMS) could not pay out more than it took in. The result: in 2015, CMS released just under 13% of the risk-corridor payments it owed to insurers. This undercut the ability of several health plan cooperatives to survive, as well as played a role in driving up premiums on the exchanges. When the federal government could not make the retroactive and newly owed payments in 2016, even healthy insurers started exiting the market, feeling the effects on their bottom lines. An analysis by Modern Healthcare found, for instance, that Blue Cross Blue Shield of Texas was owed $917 million for losses incurred in 2014 and 2015. Health Republic Insurance of New York, a start-up co-operative that ceased operation in 2015, was owed $463 million. Ten insurers were owed at least $173 million apiece for 2014 and 2015.

In 2017, these insurers want to get paid. In total, they are owed $8.3 billion in risk-corridor payments for the first 2 years of exchange operations. In February, a federal judge ruled that the government owed Moda Health $214 million in risk- corridor payments. That conflicted with the ruling of another judge, who said that CMS never guaranteed these payments. Blues plans from Tennessee, Alabama, Idaho, and North Carolina, have sued, as well as Highmark Inc, and the defunct co-ops Health Republic of Oregon and Land of Lincoln Mutual Health.

The irony, of course, is that it is no longer the Obama Administration that is responsible for this litigation. The Republicans are now in charge, and may have to decide how to settle or pay out these claims. Eight billion dollars is not a huge by federal government standards, but it would be a bitter pill for the GOP to swallow.