Fifth Circuit Upholds ACA Risk Adjustment Program

• Published date: 29 March 2022
• Subject Matter: Food, Drugs, Healthcare, Life Sciences
• Law Firm: Sheppard Mullin Richter & Hampton
• Author: Mr Samuel A. Canales

Various smaller health insurance issuers have challenged the risk-adjustment program under the Patient Protection and Affordable Care Act (ACA), alleging, among other things, that its underlying methodology favors larger insurers. Last week the Fifth Circuit issued an opinion in one of those cases, affirming the lower court's rulings in favor of the United States Department of Health and Human Services (HHS) and its administration of the risk-adjustment program. See Vista Health Plan, Inc. v. United States Dep't of Health & Hum. Servs., No. 20-50963, 2022 WL 807554, at *1 (5th Cir. Mar. 17, 2022).

The Risk-Adjustment Program

HHS implements a risk-adjustment program under the ACA in states that choose not to implement the program themselves. The risk-adjustment program is designed to redistribute actuarial risk among health insurance issuers so that sicker-than-average individuals can obtain affordable healthcare. To effectuate the program, HHS created a three-step risk-adjustment methodology:

• First, for each individual enrolled in an insurer's plan an actuarial risk score is computed using demographic and diagnostic data to determine the predicted cost of insuring that enrollee (see 2014 Final Rule, 78 Fed. Reg 15,411 (March 11, 2013));
• Second, the risk scores for each enrollee in a plan are aggregated to determine the plan's average risk score (see id. at 15,432) and
• Third, a plan's risk score is multiplied by the statewide average premium, yielding the dollar amount that a given insurer will pay as a charge or receive as a payment, for that plan for that year (see id.).

In February 2018, a district court in New Mexico vacated HHS's risk-adjustment rules for benefit years 2014 through 2018 to the extent the rules relied on the third step of HHS's methodology. New Mexico Health Connections v. United States Dep't of Health & Human Servs., 312 F. Supp. 3d 1164, 1211 (D.N.M. 2018). HHS responded by stating it would not collect or pay specified risk adjustment amounts, but would issue additional guidance in the near future. Then, in July 2018, HHS announced it would republish the previously adopted risk-adjustment rule for the 2017 benefit year. And for the 2018 benefit year, HHS promulgated a new rule in December 2018. 2018 Final Rule, 83 Fed. Reg. 63,419 (December 10, 2018).

The Dispute and Appeal

Once the new rules were published, Vista Health Plan, Inc., a small Texas health insurer (Vista Health), was assessed risk-adjustment fees exceeding its...