Formula means some insurers can 'be laughing all the way to the bank' - New Mexico Health Connections CEO Dr. Martin Hickey
New Mexico Health Connections Alleges ‘Reverse Robin Hood Dynamic’
BY DENNIS DOMRZALSKI
New Mexico Health Connections, the state’s nonprofit cooperative health plan formed under the Affordable Care Act, has sued the federal government, saying that an ACA rate stabilization program is so flawed that it financially punishes insurers that keep their members healthy and rewards those that don’t.
The lawsuit, which was filed Friday in federal court in Albuquerque, said the Risk Adjustment program as administered by the U.S. Centers for Medicare and Medicaid Services amounts to a “reverse Robin Hood dynamic” that is taking money from from New Mexico Health Connections and giving it to one of its competitors, Blue Cross and Blue Shield of New Mexico.
The Risk Adjustment program was designed to stabilize the ACA marketplace by ensuring that companies that got more really sick members than their competitors didn’t suffer financially. It works by transferring money from companies with not members who are less sick to those whose members are sicker and use health care more often.
For the 2015 insurance year, NMHC was ordered to pay $14.6 million into the Risk Adjustment program. That money represented 14.7 percent of the company’s premiums, the lawsuit said. And, it added that that money basically went to subsidize Blue Cross, which received an $18.2 million risk adjustment payment for 2015.
“This money will be paid out as a subsidy to BCBSNM,” the lawsuit said.
The suit asks that CMS be prohibited from enforcing the Risk Adjustment program in New Mexico until it makes changes to the formula. New Mexico Health Connections CEO Dr. Martin Hickey said the company will pay the $14.6 million it owes for 2015.
Health care experts across the country have criticized the Risk Adjustment program, saying it penalizes companies that keep members healthy and rewards those that don’t and that just raises their premiums. They have also said that the program could mean the end for the remaining seven U.S. co-ops that were formed under the ACA.
Hickey said NMHC is in good financial condition and that it will survive despite having to make the $14.6 million payment.
New Mexico Health Connections’ hospitalization rate per 1,000 members is about a third of other insurers in the state, Hickey said, adding that the company’s intense case management practices were working to keep people out of hospitals.
Hickey said the Risk Adjustment formula encourages insurers to raise premiums, even if they don’t need to. “If you are above the state average premium you are going to win. Having a higher average premium tilts the formula toward you,” Hickey said. “It makes the assumption that if you have higher rates you have sicker people.” He added that by simply raising rates, insurers could “game the system” and “be laughing all the way to the bank.”
Acccording to the lawsuit said the Risk Adjustment formula, as implemented, “brutally penalizes new, innovative, low-cost insurance companies and flouts Congress’s intent in enacting the ACA. Rather than stabilize the marketplace, they have destabilized it. Rather than create competition, they are crushing the small, innovative new entrants. Rather than driving down prices for consumers, they are encouraging issuers to raise rates higher and higher and are punishing carriers like NMHC who are pursuing a low-price strategy to benefit their enrollees.”
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