Health insurance co-ops battling to stay viable are turning to litigation in an attempt to convince the Obama administration it needs to change the formula for spreading insurance risk among carriers.

Co-ops in New Mexico and Massachusetts joined a Maryland co-op in challenging the government’s risk adjustment formula that supposedly strikes a competitive balance between major insurers and the small players represented by the co-ops.

As reported by the Albuquerque Business First, New Mexico Health Connections and Minuteman Health Massachusetts sued in federal court, asking that the formula be immediately suspended pending the development of a more equitable formula and a way to ensure that it works as intended — to support small insurers that take on high risk patients.

The original idea was a good one, designed to encourage insurers to sign up individuals with health problems, New Mexico Health Connections CEO Martin Hickey told Albuquerque Business First. Companies that stood to lose money because they accepted higher-risk consumers would receive payments from companies that were in the black on their book of business.

But that’s not how the formula played out, Hickey says. Instead, the formula — which includes such factors as the average state premium — has two unintended negative outcomes. It penalizes small insurers that offer primarily lower level plans through the state exchanges, and causes most insurers to raise their premiums because that’s one way to avoid paying more into the risk pool.

Hickey told the newspaper his company isn’t seeking remedial payments for what it paid in the past. Instead, the objective is to convince the federal government to act now to make the formula more equitable.

“We'll pay what we owe and we're not asking for money back,” he says. “We're paying everything, it's just this program is so detrimental to the ACA. They need to fix this one part in order to keep the cost of care down and make it more affordable. … They acknowledge these errors exist, but they're not fixing them for at least a few years.”

The Minuteman suit is similar in that it seeks a suspension of the risk adjustment program until a better solution can be crafted. But Minuteman used tougher language, branding the risk adjustment program “illegal” and claiming in a press release that “the government has effectively levied a significant tax on the company and its members just because Minuteman offers a lower cost product.”

“Congress directed (Centers for Medicare & Medicaid Services) to transfer funds between insurers based on the health status of their members,” says Minuteman CEO Tom Policelli. “Instead, CMS created a program that rewards expensive insurance companies who cater to consumers buying expensive products. CMS penalizes innovative, lower-premium carriers whose mission is to provide products to price-sensitive consumers. That is not what Congress directed CMS to do.”

Instant Insights /

Struggling co-ops turn to courts for risk formula relief

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