By Erin Mershon, CQ Roll Call
July 6, 2016 -- Several smaller, newer health plans are considering asking state regulators for relief after learning last week they owe hundreds of millions of dollars under a provision of the 2010 health law designed to stabilize fledgling insurance markets. More may follow Illinois's Department of Insurance, which ordered the state's co-op not to make its $31.8 million payment by the federal government's deadline.
Nearly every nonprofit co-op—which were themselves created by the law—owes the government money according to a report released last week; several owe as much as $24 to $46 million. Already the Connecticut co-op has been forced to shutter its doors after state regulators said the payment request compromised the plan's solvency.
Now that the numbers are out, however, they're searching for other forms of relief. Late last week, Illinois' insurance commissioner ordered the state's co-op, Land of Lincoln Health, not to make its payment until the co-op receives the full funds it is owed under the more controversial stabilization program known as "risk corridors." That money, hamstrung by an amendment in several recent budget deals, is unlikely to materialize in full for years.
Several insurance regulators and industry experts said other states are considering and discussing a similar route, and at least one co-op has requested more information from the administration about how it should handle risk corridor accounting in the wake of the payments the government is requesting under risk adjustment, according to a document shared with CQ HealthBeat.
Other states are looking to Maryland's co-op, Evergreen Health, which last month sued the government in anticipation of a crippling payment of more than $22 million. Executives there say other states have already asked for more information about their lawsuit.
"It's going to be a little bit of a legal showdown, or a regulator showdown, if you will," said Kelly Crowe, CEO of the National Alliance of State Health Co-Ops. "You're talking about a group of undercapitalized insurers that were really hammered in this risk adjustment formula....The problem seems to be magnifying, rather than getting better, despite all of the focus we've put on the problems we see with the formula."
The co-ops have long been arguing that the risk adjustment formula unfairly penalizes plans that lack the relationships with providers that can help improve results on the formula, as well as the years of claims data that older plans have and can provide better estimates of the program's charges or payouts. The risk adjustment program was designed to reallocate funds from insurers with unusually sick customers to those with unusually healthy ones.
But the sheer size of the payment requests has them frantically casting about for a solution, whether it comes from state regulators or even the Centers for Medicare and Medicaid Services (CMS), which oversees the program.
"Look at how many states now are coming on board, willing to confront CMS," said John G. Franchini, New Mexico's Insurance Superintendent. "We all see that it's wrong and even CMS is starting to see it. We just need to push them to act quicker."
Franchini isn't willing to go as far as Illinois' did, especially because the co-op in his state is still solvent, even as it faces a $13.36 million payment. But he agrees that federal regulators should consider letting the plans delay their payments until they receive what they're owed under risk corridors.
He says he's optimistic about getting relief before the payments are due in mid-August, in part because more states are grasping the magnitude of the issue.
CMS has said it wants to improve the formula—but not until 2018, which may be too late for some of the co-ops facing large payments.
"We continue to work with companies and states to refine the program so that risk adjustment works for both insurance companies and consumers shopping for affordable coverage," said Aaron Albright, a CMS spokesman, in a statement.
In Illinois, both regulators and the co-op are bracing for a response from CMS, which has not yet come, according to Jason Montrie, president of the Land of Lincoln co-op.
Illinois's regulators say they had the authority to put the brakes on the co-op's payment under state law. They also point to a federal regulation in which CMS said states should look for their own solutions to the issues raised with risk adjustment, including considering a change in the timing of the payments.
"Our department is looking to do everything in their authority to protect the marketplace, to protect consumers, and we're obviously supportive of the decision they've made to do that," Montrie said.
One industry expert pointed out that if CMS allows insurers' to delay their risk adjustment payments, the agency might be unable to fulfill the payouts it has promised to other insurance companies—which could open the administration up to still more lawsuits.