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June 13 — More insurers may fail if a key Affordable Care Act program isn't fixed, a June 13 complaint against the federal government alleges ( Evergreen Health Coop., Inc. v. HHS, D. Md., No. 16-cv-2039, filed 6/13/16 ).
To date, 13 out of 23 nonprofit Consumer Operated and Oriented Plans (CO-OPs) created under the ACA have ceased operating. In what appears to be the first lawsuit of its kind, a Maryland-based CO-OP is alleging that the miscalculation of risk adjustment assessments could be at least partially to blame.
Evergreen Health Cooperative Inc. isn't in any danger of failing, Chief Executive Officer Peter Beilenson told Bloomberg BNA June 13. It is the most profitable of the CO-OPs and “will survive” even if forced to hand over the funds, Beilenson said. But Beilenson said he'd rather see the money returned to the CO-OP's members than paid out to a long-standing insurer.
Evergreen sued the Health and Human Services Department and government officials in the U.S. District Court for the District of Maryland. It is trying to stop them from collecting about $22 million the plan is estimated to owe under the risk adjustment program.
As currently constituted, the government's methodology for making the assessments disfavors new market entrants, the complaint said. Pre-existing insurers have an advantage because they have information about their enrollees from prior years that allows them to demonstrate what they will have to pay out to cover those members' health needs. In turn, that makes it possible for them to be eligible for payments collected by the government from insurers whose enrollees look healthier on paper.
If forced to make the payment, Evergreen wouldn't be able to use its premium revenue to improve member benefits and would be placed at risk of falling below the state's insurance reserve requirements, the insurer said in the complaint. When considered along with Evergreen's inability to collect payments promised to it under another ACA feature—the risk corridor program—Evergreen could be placed in a challenging position.
The risk adjustment program is one of the ACA's “three R's”—interrelated premium stabilization programs intended to encourage competition among insurers in the individual and small group markets. This program, along with the risk corridor and reinsurance programs, also was intended to reduce insurers' incentives to charge high premiums in the face of uncertainties they faced by opening their plans to people who, under the ACA, may not be denied coverage or charged higher premiums.
Evergreen, launched in 2012, offers individual and small group plans on Maryland's ACA marketplace. According to the complaint, ACA Section 1343(a)(1) requires states to charge such plans a risk adjustment. It's a “zero-sum game,” according to Beilenson.
An insurer's risk scores are based on its enrollees' health needs. Thus, an insurer whose members have complex health needs that are likely to lead to higher medical costs will have a higher risk score. Insurers whose members have fewer health-care needs receive a lower risk score. Insurers in the second category must pay a sum to be determined by the government, which then will be used to compensate the other insurers for their higher risks.
The methodology adopted by the HHS gives an advantage to insurers who have been in business longer because they have more information about their enrollees, the complaint said. For example, under the HHS's policy, enrollees are assigned hierarchal condition categories (HCCs) that correspond with specific conditions or diagnoses. Individuals are assigned HCCs only when a provider diagnoses or recognizes a condition during a time when the individual is enrolled in a plan.
Newer insurers' enrollees won't reflect their cost to the plans when they have been diagnosed with a condition prior to joining the new plan because an HCC may not be assigned until they see a physician following the change in their insurance. This results in the new insurer having a lower risk score than older insurers, even if they can show their enrollees have HCC conditions. The newer plans, then, would have to pay, while the older plans would be able to collect payments.
Beilenson told Bloomberg BNA that, in Evergreen's case, this means the millions it has been assessed eventually will be paid to CareFirst, the leading insurer in the market, because CareFirst has lower risk scores.
Beilenson said the government assessments under the risk adjustment program are scheduled to be released June 30 and payments are due by Aug. 15. Evergreen is asking the court to issue an order blocking the government from demanding those payments.
The insurer is alleging that the methodology adopted by the government is arbitrary and capricious, and isn't required by the ACA. The three R programs, Beilenson added, aren't working as they were envisioned.
Matt Jablow, Evergreen's public relations director, told Bloomberg BNA the insurer has tried to work with the HHS and the Centers for Medicare & Medicaid Services to develop a risk adjustment method that would be fair to all, but met with “incredible intransigence,” even in the face of bipartisan support from state and federal lawmakers. Filing a lawsuit was “the last thing” Evergreen wanted to do, Jablow said, but felt it had no choice after all its proposals were rejected by the federal regulators.
Evergreen's Beilenson told Bloomberg BNA that, while his company may be first to bring a lawsuit, it won't be the last. He expects several other insurers, including CO-OPs, to file similar complaints in federal district courts throughout the country over the next few weeks.
Philip J. Peisch, of Covington & Burling LLP, Washington; and Mary T. Porter, of Evergreen Health Cooperative Inc., Baltimore, represented the insurer.
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The complaint is at http://src.bna.com/fRU.
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