Appeals court upholds ACA risk adjustment

A federal appeals court ruled in favor of the Affordable Care Act’s risk adjustment methodology, overturning a case brought forward by a New Mexico-based insurance cooperative.

New Mexico Health Connections (NMHC) originally filed suit in 2018, saying the risk adjustment methodology penalized small insurers. District Judge James Browning ruled in NMHC’s favor, saying the Department of Human Services’ approach to risk adjustment was “arbitrary and capricious.”

A three-judge panel on the U.S. Court of Appeals for the 10th Circuit unanimously overturned that decision on Tuesday, saying HHS justified its methodology for risk adjustment in making the program “budget neutral.”

The risk adjustment methodology is used for health plans that operate on the federal exchanges. Intended to discourage insurers from passing on patients with pre-existing conditions, it redistributes funds from plans with healthier members to those with sicker enrollees.

The Department of Health and Human Services redistributes the funds based on the statewide average premium. New Mexico Health Connections and other insurance cooperatives have challenged the methodology.

“Rather than create competition, they are crushing the small, innovative new entrants like NMHC,” the complaint stated.

NMHC would have paid more than $5 million in risk adjustment charges in 2018, the majority of which the co-op said would go to large insurers, such as Blue Cross and Blue Shield of New Mexico.  In the complaint, NMHC called the payments an “upside-down his upside-down system of reverse Robin Hood.”

NMHC can bring the case before the 10th Circuit Court again or appeal to the Supreme Court. The case is New Mexico Health Connections v U.S. Department of Health & Human Services et al.


Photo credit: artisteer, Getty Images

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