New Mexico Health Insurer Files Suit Over ACA

Aug. 02--A New Mexico health insurer is suing the Obama administration, claiming rules implemented under the Affordable Care Act require the insurer to pay millions annually to a competitor, Blue Cross and Blue Shield of New Mexico, whose parent company sits on nearly $10 billion in reserves.

"This regulatory dystopia is the equivalent of forcing the local baker who sells cupcakes to neighborhood coffee shops to pay between 14 percent and 22 percent of his revenue to Nabisco," says the complaint filed Friday by New Mexico Health Connections.

At issue is a U.S. Department of Health and Human Services risk-adjustment model that requires certain health insurers whose members are healthier to pay competitors whose members who aren't as healthy -- and are thus costlier to cover. The model is supposed to free insurers from being financially penalized for taking on less healthy members, allowing them to lower costs and offer more innovative insurance plans.

New Mexico Health Connections argues that it delivers just the type innovative health insurance coverage envisioned by the Affordable Care Act, also known as "Obamacare." But the company's federal lawsuit says the U.S. Department of Health and Human Services risk-adjustment model "brutally penalizes new, innovative, low-cost insurance companies and flouts Congress's intent" in enacting the Affordable Care Act.

But Dr. Martin Hickey, CEO of New Mexico Health Connections, said the risk-adjustment formula also penalizes insurers when they offer lower rates. That's because it uses average statewide premiums to determine payments.

Hickey said the unpredictability of the "complex" and "unruly" formula makes business planning difficult.

"Our members are paying for, you know, a large insurance company with $9.4 billion -- that's with a 'b'-- in reserves," he said. "It just doesn't seem to make sense."

John Franchini, the New Mexico superintendent of insurance, said Monday that New Mexico Health Connections is a "perfect example" of how the risk-adjustment formula works against new and profitable managed-care plans. Franchini is one of several state insurance bosses who have called on the Obama administration to change or end the model.

Risk adjustments that just came out for 2015, Franchini said, require five companies to pay a collective $18 million. That $18 million will be paid out to one insurer, Blue Cross and Blue Shield of New Mexico. New Mexico Health Connections represents 1.8 percent of the health insurance market for the state, Franchini said, yet it has to pay more than half of the $18 million in risk adjustments, assessed to five companies. (The lawsuit says New Mexico Health Connection's payment was $14.5 million).

"Now is that a fair ratio?" Franchini said. "I don't think it is."

Calling the federal government's formula "flawed," Franchini said he will be meeting with federal officials later this month in Washington, D.C. for a face-to-face discussion "about these very issues."

The federal government also assessed New Mexico Health Connections a risk-adjustment charge of more than $6.6 million in 2014, representing 21 percent of the revenue it earned on premiums during its first year of operation, according to the lawsuit. All of that money went to Blue Cross and Blue Shield of New Mexico.

Becky Kenny, spokeswoman for Blue Cross and Blue Shield of New Mexico, said in an email that the "risk-adjustment program is designed to spread risk more evenly across health plans within the market.

"BCBSNM is receiving a payment to account for the higher risk of the members that enrolled in our plans," she said in reference to the $18 million in risk adjustments being paid to the company.

Even with the payment, Kenny said, Blue Cross and Blue Shield of New Mexico in 2015 lost $22 million on its retail Affordable Care Act membership.

Aaron Albright, spokesman for the Centers for Medicare and Medicaid Services, the agency that created the formula, said in an email that the agency does not comment on litigation. He defended the risk-adjustment program.

"The risk-adjustment program helps ensure that Americans have access to a range of affordable coverage options regardless of health status," Albright said. "As the data show, companies with sicker-than-average enrollees will receive payments from other health insurance companies with healthier-than-average enrollees. 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."

But Franchini, in an interview with The New Mexican, placed the blame of recent premium hikes directly onto the risk-adjustment program. He said New Mexicans could have a 20 percent lower rate on their plans without the risk-adjustment model.

"This is people's lives and health insurance premium payments at stake," Franchini said.

New Mexico Health Connections, formed in 2013 with help of a loan offered under the Affordable Care Act, uses a medical care model to control disease progression of its 44,500 members, thereby reducing hospitalizations and passing on savings to the consumer, the lawsuit says.

The lawsuit, one of at least two other similar complaints filed across the nation, asks the court for declaratory and injunctive relief "to put a stop to this system that is supposed to stabilize the market, but instead has already caused tremendous destabilization and wreaked havoc for thousands of consumers trying to find an affordable health insurance plan."

Contact Justin Horwath at 505-986-3017 or [email protected].

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