2 more ACA co-ops sue over risk adjustment while judge orders Evergreen to pay up

HHS is now facing lawsuits from three health insurance co-ops set up under the Affordable Care Act, but the organization won a small victory when a federal judge ordered an insurer to make a $24 million risk adjustment payment.

A dwindling number of co-ops has resorted to suing HHS over the risk adjustment formula within the ACA, arguing it unfairly benefits larger, older insurers. The first to file was Maryland’s Evergreen Health Cooperative, which argued the sum CMS said it owed for 2015 would take up more than 28 percent of its premium revenue, causing “irreparable harm” to the insurer.

A district court judge rejected the request to delay the payment, as did an appeals judge from the Fourth Circuit.

While HHS won that battle in court, Massachusetts-based co-op Minuteman Health and New Mexico Health Connections filed lawsuits July 29 over the same program, with Minuteman calling the ACA’s risk adjustment a “reverse Robin Hood scheme” that takes money away from smaller insurers with lower premiums, especially those which offer Bronze-level plans on the ACA exchanges.

“Congress directed CMS to transfer funds between insurers based on the health status of their members," Minuteman CEO Tom Policelli said in a statement. "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."

Minuteman said it owes CMS $16.7 million under the risk adjustment formula, which Policelli admitted it can afford but argued in his statement that ability to make the payment isn’t the point of the suit.

“We cannot continue to allow CMS to take our members' money illegally and give it to more expensive insurance companies,” he said.

New Mexico Health Connections made similar arguments in its complaint. According to the Albuquerque Journal, the co-op owes $14.6 million in risk adjustment payments for 2015, while the largest insurer in the state, Blue Cross Blue Shield of New Mexico, would receive more than $18 million for 2014 and 2015.

“Rather than stabilize the marketplace, (federal regulators) have destabilized it,” the lawsuit said.  “Rather than create competition, they are crushing, the small, innovative new entrants.”

The demise of other co-ops has been blamed on the risk adjustment methodology used by CMS. Illinois’ Land of Lincoln Health cited the $31.8 million it owed for 2015 when the state’s insurance department announced it would be shutting down later this year, leaving 49,000 members looking for new coverage. After its demise, only 7 of the 23 original ACA co-ops will still be operating.