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Mason L. Budelier | Freeborn & Peters LLP // // //

Mason is Senior Counsel in the Healthcare Practice Group. Mason is a Medicaid subject matter expert, with unique public sector legal and executive management experience. Mason has in-depth knowledge of state and federal processes related to health and human service program administration, audits, information technology, grants and procurement, and legislation and rulemaking.

Prior to joining Freeborn & Peters, Mason was appointed by the Governor to serve as the Executive Director and General Counsel of the Illinois Health Information Exchange Authority (the Authority), leading the State of Illinois’ efforts to support the statewide adoption and use of health information exchange and health information technology. As such, Mason has significant experience navigating the ever-evolving legal, transactional, and policy issues related to health information technology designed to support the care coordination efforts of public Medicaid programs and private Medicaid health plans.

Prior to his work with the Authority, Mason served as Staff Counsel within the Office of Inspector General (OIG) of the Illinois Department of Healthcare and Family Services (HFS), the Illinois agency responsible for administering all aspects of the Medicaid program. In that role, Mason helped develop and lead the Inspector General’s initiatives related to Medicaid providers, recipients, and managed care oversight. During his time with the OIG, Mason handled a wide variety of regulatory, audit, transactional, legislative, and operational matters.

Since the first cases were filed earlier this year, we have been following nationwide litigation seeking full risk corridors payments to qualified health plans (QHPs) providing coverage on the Affordable Care Act (ACA) exchanges.

Most recently, in a bulletin dated September 9, 2016, the federal Department of Health and Human Services (HHS) – through its Centers for Medicare and Medicaid Services (CMS) – has announced that it is open to discussing resolution of those claims. The bulletin also suggests a process through litigation that could allow other QHPs to seek recovery of amounts they are owed in risk corridors payments. The bulletin could open another front in the political battle over the ACA that has ebbed and flowed since 2010.

The risk corridors program is one of three programs (collectively referred to as the 3Rs) designed to stabilize the health insurance market impacted by the implementation of the ACA. The risk corridors program is designed to limit gains and losses in the first three years of the health insurance or exchanges; the basic idea is to collect funds from insurers whose total claims fall below certain target amounts and pay insurers that have experienced higher than expected claims that exceed target amounts.

For 2014, insurers with results below the claims threshold were required to pay approximately $362 million in risk corridors charges. Insurers with higher claims were entitled to approximately $2.87 billion in risk corridors payments. Congress did not appropriate funds to make up the shortfall. Further, in budget bills Congress prohibited the use of other funds available to HHS for risk corridors payments. As a result, CMS only paid approximately 12.6% of the risk corridors payments owed for 2014, stating that it intends to make-up the shortfall with risk corridors funds collected in subsequent years and that it will work with Congress to fully fund the program.

Seeking to recover amounts they are owed, some insurers have sued HHS, arguing that the ACA requires that they be paid in full. HHS does not dispute that the ACA requires full risk corridors payments, but has argued the lawsuits are premature because the full extent of gains and losses cannot be known until the end of the three-year program.

In its September 9th bulletin, CMS announced that preliminary information suggests that risk corridors collections in 2015 will again not cover amounts owed to insurers under the risk corridors program. The agency reported that 2015 risk corridors collections will be applied to make up the 2014 shortfall, but will not fully cover those obligations or allow payment of any of the 2015 obligations at this time.

In an unusual statement, HHS acknowledged the pending risk corridors litigation and invited settlement discussions, writing:

“We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”

It is noteworthy that a different source of federal funds, the Judgment Fund, may be available to pay settlements in the risk corridors litigation. The Judgment Fund is a permanent appropriation available to pay judicially and administratively ordered monetary awards against the United States.

The bulletin has raised questions regarding the reasoning and intent behind the statements regarding settlement of the litigation. HHS may believe that it has a weak legal position and is pragmatically trying to resolve the cases in a manner as favorable to the government as possible. Other observers see this as an end-run around the federal budget process. Still others see it as a creative step to help support the viability of the insurance exchanges. Because HHS acknowledges the validity of the obligations and is charged with implementing the ACA, this last view is not an unreasonable interpretation. In any event, if the Judgment Fund can provide a source of funds for risk corridors payments, other similarly situated insurers will likely consider filing their own suits to recover amounts they are owed.

The HHS September 9, 2016, bulletin regarding Risk Corridors Payments for 2015 can be found here:

https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Risk-Corridors-for-2015-FINAL.PDF

On August 12, 2016, the federal Centers for Medicare and Medicaid Services (CMS) issued both a report delivering a message of optimism regarding the healthcare Marketplaces (or exchanges) and posted a blog written by the exchange CEO in which more regulatory flexibility was promised.  All this against the backdrop of continuing, expanding, nationwide litigation over the future of the 3Rs program, controversy over rate filings and insurers deciding whether or not they will offer coverage on the exchanges will make 2017 a critical and interesting year for the ACA.

CMS Marketplace Report 

CMS released a report presenting three positive findings regarding the evolution of costs in the Affordable Care Act (ACA) individual market from 2014 to 2015.

  1. Per-enrollee costs in the ACA individual market were essentially unchanged between 2014 and 2015.
  2. Available evidence indicates that the slow ACA individual market cost growth resulted at least in part from a broader, healthier risk pool.
  3. Nearly all states saw continued growth in Marketplace enrollment in 2016, suggesting continued risk pool improvement.

Modifications to Risk Adjustment Program

In a companion post to the CMS blog, Kevin Counihan (CEO of the federal Health Insurance Marketplace) announced future rulemaking to modify the ACA’ s permanent Risk Adjustment program.   Mr. Counihan stated that CMS will “propose modifying the risk adjustment program to absorb some of the cost for claims above a certain threshold (e.g., $2 million), funded by a small payment from all issuers.”

The CMS cost findings from 2014 and 2015 appear positive.  But, in any case, questions remain as to whether those findings are indicative of trends for 2017 and beyond.  As insurers became more familiar with their risk pools, individual premiums increased by (on average) about 5% in 2016.  And, with the temporary reinsurance element of the 3Rs program coming to an end in 2017, experts and actuaries expect individual premiums to increase (on average) by about another 10% in 2017.  Some insurers are asking for even larger increases pointing to the high cost of covering insureds with expensive to treat conditions.  Other factors impacting rates include churn from insureds changing carriers or even dropping coverage after receiving expensive healthcare.  Even a relatively small number of individuals with serious health conditions can have a significant impact on an insurer’s cost of coverage.

In response, CMS promises a future modification of the permanent Risk Adjustment element of the 3Rs program “to better adjust for the highest-cost enrollees and their actuarial risk, which would achieve some of the same risk-sharing benefits as the reinsurance program.”

Mr. Counihan also states that CMS is “exploring options” for other rulemaking aspects regarding the Risk Adjustment program, which may be a response to the recent lawsuit filed against CMS by Evergreen Health Cooperative, a Maryland Consumer Operated and Oriented Plan (CO-OP).  Risk Adjustment is a redistributive zero-sum game, with the federal government administering payments from plans with lower-cost members to plans with higher-cost members.  However, as Evergreen and others have argued, the Risk Adjustment formula favors big, established plans with more claims experience by not accounting for the effects of certain claims data and not including prescription drug data.  As a result, CMS may be exploring ways to both stabilize premiums for individuals and level the regulatory playing field for different types of insurers.

Mr. Counihan closes his post by stating that the CMS “door is always open to new ideas that help spread the risk of providing coverage for people with significant health care needs.”  Such ideas are certainly needed as nationwide 3Rs litigation continues, premiums increase and insurers reconsider participation on the exchanges.

The CMS report can be found here: https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Final-Risk-Pool-Analysis-8_11_16.pdf.

The companion blog post from Mr. Counihan can be found here:

https://blog.cms.gov/2016/08/11/building-on-premium-stabilization-for-the-future/.