It took a crisis to spur the Trump administration to action, but it did finally act. Yesterday evening, HHS released a rule addressing a New Mexico judge’s concerns with the risk adjustment program. If all goes well—more on that in a moment—the new rule should put an end to risk adjustment fiasco.
To bring you up to speed: six months ago, a New Mexico judge vacated HHS’s rules governing risk adjustment. The judge’s rationale? In his view, the agency failed to explain why risk adjustment had to be budget neutral and why it therefore had to use a statewide average premium, instead of the insurer’s own premiums, to calculate risk adjustment transfers.
Ostensibly because of that order, HHS decided that it lacked the authority to make any risk adjustment transfers for 2017 and 2018. As a result, $5.2 billion in transfers that would have been made were put on hold. When word leaked about HHS’s decision in early July, all hell broke loose. Freezing the risk adjustment program looked like another case of sabotage from the Trump administration.
That’s how it looked to me, anyway. As I wrote, the Trump administration had options if it really wanted to keep making the payments. First, it could have issued a rule addressing the court’s concerns. Second, it could have filed a notice of appeal and sought a stay pending appeal. Third, it could have construed the court’s order to apply only to New Mexico.
The fact that the administration chose to do none of those things made me think it was taking a dive. As I said at the time, however, “[w]hether this latest act of sabotage winds up being a big deal will depend on whether the Trump administration acts with dispatch to bring this litigation to a close.”
With yesterday’s rule, the Trump administration looks like it finally got its act together. The rule explains, in some detail, why HHS decided to make the risk adjustment program budget neutral. A program that’s supposed to equalize risk across a statewide population, the agency says, wouldn’t work if it used each plan’s individual rates as a baseline. Insurers would start to compete over how well they could discourage unhealthy people from signing up, and the whole point of risk adjustment is to stop that behavior. Plus, if risk adjustment were not budget neutral, HHS would have to go hat in hand to Congress for annual appropriations. That’s no way to maintain stability in the individual insurance market.
The explanation is cogent and convincing. Its substance should fully address the court’s concerns. And so the Justice Department informed the court today about the new rule and asked it take it into account when ruling on a still-pending motion for reconsideration. Better still, the filing says that HHS “will now proceed with carrying out the risk adjustment program for the 2017 benefit year, including collecting charges and making payments.” Instead of waiting for the court to act, the Trump administration is moving forward on its own.
That newly assertive stance—a welcome one, in my view—doesn’t mean the risk adjustment program is in the clear. The plaintiffs in the case may object, arguing that the new rule is defective because it didn’t go through notice and comment. HHS thinks it had good cause within the meaning of the Administrative Procedure Act to skip that process, and I think it’s right about that. Maintaining stability and predictability in insurance markets requires immediate action; insurers can hardly complain about being blindsided since the rule doesn’t make any substantive changes; and the original rule went through notice and comment when it was originally adopted. (Because there’s no similar urgency for 2018 payments, changes to that year’s risk adjustment rule will be put through notice and comment.)
Whether the judge sees it the same way remains to be seen. He managed to convince himself that the agency’s rule was defective the first time around (it wasn’t), and I don’t know that he’ll be amenable to a quick fix. But it’d be pretty outrageous to invalidate a rule because the agency failed to thoroughly explain itself, even though the agency has now thoroughly explained itself.
In short, the Trump administration did the right thing here. If it deserves some criticism for precipitating a crisis, it also deserves some praise for moving to fix it. Better late than never.