DENVER (CN) – Lawyers for the U.S. Department of Health and Human Services warned a 10th Circuit panel Wednesday of the consequences of a federal judge’s decision to throw out the department’s budget-neutral approach to designing risk adjustment.
The 2010 Affordable Care Act bars insurers from denying coverage or charging higher premiums based on a person’s health, but insurers can design plans to attract people based on their health care needs. To incentivize insurers against reflecting risk on the market, the law tasks states with designing their own risk-adjustment formulas to help balance rates.
Absent state action, Health and Human Services devised a default system for states to adopt aiming to spend unused funds from healthier people and on those who need more care.
Massachusetts was the only state to design its own risk-adjustment system, which it abandoned in 2017.
Because Congress never appropriated money to Health and Human Services for the program, the agency designed a system that would pay for itself.
But New Mexico Health Connections, an insurer in the Land of Enchantment, challenged the department’s assumption that its formula had to be budget-neutral. U.S. District Judge James Browning agreed in 2018 that the department didn’t clearly articulate its reasons when it made the approach mandatory.
Health Connections argues the system stacks the market against new insurers who don’t have good data on how healthy or unhealthy their customers are.
“The agency had no reason to believe it was required to do anything differently until this case was filed,” explained U.S. Attorney Joshua Revesz. “Congress doesn’t appropriate money or how much, so the agency can’t appropriate money or design a system that isn’t budget-neutral.”
Health Connections asked the department to dip into a lump sum to further fund health insurance risk management – but that money hasn’t been appropriated by Congress.
“They designed their budget on the assumption that it had to be budget-neutral, then the agency decided it would be – it didn’t have to be, they put the rabbit in the hat,” explained Health Connections attorney Barak Bassman, a partner with Pepper Hamilton.
U.S. Circuit Judge Harris Hartz, appointed by George W. Bush, questioned whether the insurer was right to argue the case several years after the policy had been in effect.
“You have the right to challenge that error, even though it never arose in administration?” Hartz asked. “What [U.S. District Judge] Browning was concerned about was that the budget-neutral approach hadn’t been explained. Now it has to pass our test that administrative remedies have been exhausted and I don’t see how that can be satisfied.”
Bassman said the test isn’t necessary if the issue is obvious.
“It’s obvious that it has to be explained as a part of rational rulemaking,” Bassman said.
But U.S. Circuit Judge Carlos Lucero, appointed by Bill Clinton, leaned back in his chair.
“It seems rational to me that you can’t spend money not appropriated or you’d run into a deficit,” Lucero said.
U.S. Circuit Judge Scott Matheson Jr., a Barack Obama appointee, rounded out the panel. They did not indicate when they will rule.