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UPDATED: Trump freezes Obamacare payment program, leaving insurers scrambling

The sabotage of Obamacare continues.

WASHINGTON, DC - JULY 25:  U.S. President Donald Trump holds a joint news conference with Lebanese Prime Minister Saad Hariri in the Rose Garden at the White House July 25, 2017 in Washington, DC. Trump began the news conference by announcing that Senate Republicans had passed a procedural vote on repealing Obamacare.  (Photo by Chip Somodevilla/Getty Images)
WASHINGTON, DC - JULY 25: U.S. President Donald Trump holds a joint news conference with Lebanese Prime Minister Saad Hariri in the Rose Garden at the White House July 25, 2017 in Washington, DC. Trump began the news conference by announcing that Senate Republicans had passed a procedural vote on repealing Obamacare. (Photo by Chip Somodevilla/Getty Images)

The Trump administration is freezing a critical Affordable Care Act (ACA) insurance payment program that discourages insurers from cherry picking healthier enrollees by compensating them for sicker ones.

The move could rattle insurance companies at the very moment when they’re deciding whether to continue selling ACA plans and setting premiums for 2019. It’s not immediately clear what this means for ACA enrollees, if anything.

The news comes after the Wall Street Journal reported they might suspend the program:

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.

“We were disappointed by the court’s recent ruling. As a result of this litigation, billions of dollars in risk adjustment payments and collections are now on hold,” said the Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma in a statement released on Saturday. “CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets.”

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CMS argues the ruling prevents it from making further collections or payments in the risk adjustment program, including amounts for the 2017 benefit year which amount to $10.4 billion, until the litigation is resolved. However, outside experts are skeptical of the claim.

To make it easier for people with pre-existing conditions to buy coverage and ensure market stability in the process, the risk adjustment program moves money from insurers who cover healthier populations than the statewide average to insurers who cover sicker populations.

The government uses a complicated formula to determine which insurers pay in and this formula was the point of contention, prompting two nonprofit insurers to file two different lawsuits.

Credit: Kaiser Family Foundation

A New Mexico-based federal judge called the risk adjustment formula  “arbitrary” and “capricious” in ruling that the CMS formula was flawed. However, a Massachusetts based-federal judge upheld the risk adjustment formula, which means the Trump administration doesn’t need to end the payments altogether.

“Although the ongoing litigation raises the question of whether there will be a delay in risk adjustment transfers for 2017 and 2018, the payments themselves should not be at risk,” said Health Affairs’ Katie Keith.

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Former CMS administrator Andy Slavitt added on Twitter that there’s “[n]ot a reason to stop all the payments unless politically motivated.”

For 2016, risk-adjustment payments were valued at 11% of total premium dollars, so insurers could lose a good amount of money. But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain unaffected. Nor does it mean big loses for all insurers participating in the program, as ending risk adjustment could mean windfalls for others, as Kaiser Family Foundation’s Larry Levitt said on Twitter.

So far, ACA marketplaces have proven to be resilient, defying expectations that Trump sabotage would destroy the exchanges. Roughly 12 million people signed up for the ACA marketplace in 2018 and insurance options are growing for 2019. That’s because companies have learned how to turn a profit, and are now joining the ACA marketplaces. That said, insurers are still submitting pricey premium rates for 2019, citing uncertainty and repeal of the individual mandate. For this reason, the market will be even less affordable for people who don’t qualify for federal subsidies.

Ending the risk adjustment program or temporarily freezing payments could unnerve insurers who thought they were in for a relatively calm ACA season. CMS added in its statement that it will issue guidance shortly on how insurers should treat the news, in terms of financial losses.

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Georgetown health policy expert Edwin Park said should the risk adjustment program end, insurers over the long run “would be forced to sharply raise premiums or reconsider participation.”

This story has been updated to reflect the official CMS statement ending the program that was released on Saturday.