The move will forceinsurers to raise premiums for next year to cover the risk that thestabilizing payments won't get made. (Photo: Shutterstock)

Affordable Care Act insurers are facing a fresh round ofuncertainty that could drive up premiums or push companies to stopoffering coverage through the law, after the Trump administration'slatest move to cut off subsidies meant to help stabilize insurance markets.

On Saturday, the U.S. Centers for Medicare & MedicaidServices said a months-old federal court ruling would force it tosuspend what are known as risk-adjustment payments, worth about $10.4billion for 2017. The payments are part of a program in theAffordable Care Act meant to help balance the insurance marketswhen some insurers inevitably got stuck with sicker, more costlypatients.

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The administration said it's appealing the ruling, which mostimmediately affects payments under the program in 2017 that were tobe made this year.

“Billions of dollars in risk-adjustment payments and collectionsare now on hold,” CMS Administrator Seema Verma said in a statementover the weekend. “CMS has asked the court to reconsider itsruling, and hopes for a prompt resolution that allows CMS toprevent more adverse impacts on Americans who receive theirinsurance in the individual and small group markets.”

The effect of the cut-off will be complex. In the short-term, itwill likely favor health insurers that have drawn healthier,less-costly customers. Under the risk-adjustment program, thoseinsurers make payments into a pool is redistributed to plans withsicker, more costly patients. As a result, some plans that hadalready been doing better financially will benefit from not havingto make the payments.

Steadying mechanism

Likewise, plans with more costly groups of customers willsuffer. Without the steadying mechanism, that could destabilize themarkets in the long term. It will also force insurers to raisepremiums for next year, to cover the risk that the stabilizingpayments won't get made, said one lobbying group for healthinsurers.

“This action will significantly increase 2019 premiums formillions of individuals and small business owners and could resultin far fewer health plan choices,” Blue Cross Blue ShieldAssociation Chief Executive Officer Scott Serota said in astatement. The Centers for Medicare and Medicaid Services “shouldtake immediate action to reinstate these payment transfers toensure the market works as intended.”

The program doesn't cost the federal government money. Instead,it moves funds around among insurers to make sure that even peoplewith pre-existing conditions or who are at higher risk of gettingsick can get coverage.

Decision time

The move comes just as health insurers were deciding whichmarkets to participate in for next year and going about the complexprocess of setting the prices they'll charge. Despite the Trumpadministration's prior attempts to dismantle the law or undermineit, some insurers that have stuck with the program have turnedprofits, and there have been early signs that some health planswould expand their coverage footprints for next year.

Publicly traded insurers with large presences in Obamacareinclude Centene Corp. and Molina Healthcare Inc. Suspending theprogram could theoretically benefit those companies, which eachowed other insurers about $1 billion under the program as of March31, according to regulatory filings. Company representatives didn'tcomment outside normal business hours.

Some newer insurers have criticized the risk-adjustment program,saying it benefits more established insurers that have theresources to identify more of their customers' ailments. Thelawsuit that led CMS to halt payments resulted from a challenge byan insurer in New Mexico that said the program's rules werearbitrary and unfair.

The court decision was “good for small and new health insurancecompanies, and therefore to anyone who purchases health insurance,”said doctor Martin Hickey, the founder and former CEO of thatinsurer, New Mexico Health Connections. “Getting this program fixedwill lead to a more stable market. It will attract more insurancecompanies because the risk adjustment will be more predictable andthis increased competition will reduce rates.”

Small insurers

Insurers that face the most risk of harm are likely smallercompanies with lots of sick customers. Those companies would tendto be owed money and might not have the financial resources to waitfor a resolution, or to make up for a shortfall.

“This decision will have serious consequences for millions ofconsumers,” the trade group America's Health Insurance Plans saidin a statement. “It will create more market uncertainty andincrease premiums for many health plans — putting a heavier burdenon small businesses and consumers, and reducing coverageoptions.”

The Centers for Medicare and Medicaid Services said it willprove more information soon on how insurers should handle otherissues tied to risk-adjustment payments. The agency typically wouldgive insurers information about their 2017 payments in June 2018,and then move the funds in the fall.

The Trump administration could resolve the situation by issuinga new rule for the risk-adjustment program that addresses issuesraised by the judge's ruling in the New Mexico case, according toKatie Keith, who consults on health-care issues and blogs for thejournal Health Affairs.

The legal situation won't affect the risk-adjustment program in2019, because the administration already issued a new regulationfor next year that accounts for the issues in the New Mexico case,Keith wrote.

The Centers for Medicare and Medicaid Services didn'timmediately respond to a question Sunday about writing a new ruleto cover the current payments.