//  7/9/18  //  Commentary

On Friday evening, the Wall Street Journal reported that the Trump administration would be suspending risk adjustment payments due for 2017 and 2018. The next day, CMS scurried to clarify that the suspension was a necessary response to an adverse court judgment out of New Mexico. “As a result of this litigation,” Administrator Seema Verma said, “billions of dollars in risk adjustment payments and collections are now on hold.”

I don’t buy it. Neither should you.

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The Affordable Care Act’s risk adjustment program tells insurers with relatively healthy enrollees to fork over some of their premiums to health plans with relatively unhealthy enrollees. Risk adjustment isn’t remotely controversial. It’s also used in Medicare Advantage and Medicare Part D, and it aims to discourage insurers from competing over how best to attract healthy people to their plans.

That doesn’t make risk adjustment easy. No one can perfectly predict risk, and any given methodology will reward some health plans relative to others. Plus, bigger players with more experience with risk adjustment tend to be especially good at gaming the methodology. In the ACA’s early years, the new co-ops in particular felt that they were getting the shaft. So they sued to challenge the rule that CMS had adopted to calculate risk adjustment transfers.

In February, a district court in New Mexico brushed back most of the co-op’s arguments but agreed that CMS hadn’t adequately explained why risk adjustment had to be budget neutral. That failure to explain, the court reasoned, also undermined the agency’s justification for using a statewide average premium, as opposed to the insurer’s own premiums, to calculate risk adjustment transfers.

The court thus invalidated the rule. In so doing, the court acknowledged that “nothing in the statute forbids neutrality and designing risk adjustment to be budget neutral may be a reasonable policy choice.” But the agency had to offer a better explanation for making that particular choice. In the meantime, “[t]he Court sets aside and vacates the agency action as to using a statewide average premium for the 2014, 2015, 2016, 2017, and 2018 rules and remands the case to the agency for further proceedings.”

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The court’s opinion wasn’t compelling, to put it mildly. The point of risk adjustment isn’t to subsidize insurers with especially unhealthy populations. The point is to adjust risk among insurers. That’s why risk adjustment has to be “budget neutral.” It’s totally senseless to compel CMS to explain something that was obvious to the agency and to every stakeholder in the process. As I see it, the judge’s decision typifies the kind of mistake that generalist judges make in reviewing complex rules that they only dimly understand.

That was also the Justice Department’s view, at least initially. In a somewhat unusual move, it filed a motion for reconsideration, and asked the court (among other things) to leave the regulation intact while CMS corrected the rule’s deficiencies. (The practice is known as remand without vacatur.) The court held a hearing on the motion on June 21, and could address it any day now.

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In the meantime, the court’s order remains in place. And so CMS says that the ruling “prevents [the agency] from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved.”

That's wrong. The truth is that the Trump administration has lots of options. It’s just choosing not to exercise them.

First and foremost, CMS could have moved quickly to adopt a rule to address the judge’s concerns. Indeed, it’s already done that for the 2019 risk adjustment year, where it proffered precisely the sort of explanation that the judge says he’s looking for. For prior years, CMS could have issued an interim final rule (i.e., one that took immediate effect) offering the same explanation for prior plan years, after which it could have solicited notice and taken comments. With that interim final rule in hand, it could have sought to vacate the district court’s decision.

Second, the Justice Department could have filed a notice of appeal (even while the motion for reconsideration is pending) and sought a stay pending appeal, first from the district court and, failing that, from the Tenth Circuit or even the Supreme Court. That’s what I expected the Justice Department to do: it’s a completely natural move for a litigator. And this is precisely the sort of case in which a stay would be appropriate. The district court’s decision is weak, the rule’s deficiencies can be easily addressed, and allowing the decision to take immediate effect would be immensely disruptive.

Third, although the court “vacate[d]” the agency rule, it didn’t say exactly what it meant by that. The conventional rule is that “injunctive relief should be no more burdensome to the defendant than necessary to provide complete relief to the plaintiffs.” Against that backdrop, the Justice Department could have construed the court’s order to apply only to the plaintiff that brought the suit, or perhaps (more generously) to any insurer in New Mexico. Risk adjustment could have continued uninterrupted elsewhere.

Yes, it’s possible that the New Mexico court meant to impose a nationwide injunction, even though it never said so. But the Justice Department believes that district courts lack the power to enter that kind of nationwide injunction. Indeed, it recently filed a cert petition pressing that point. And for good reason: no single judge should have the power to throw vital federal programs into disarray.

The executive branch thus has strong institutional and constitutional incentives to resist broad interpretations of district court injunctions. It could and should have resisted such an interpretation here. If that created a (small) risk of being held in contempt, well, so be it. The executive branch is a co-equal branch of government. Sometimes it has to act like it.

Even these options don’t exhaust the toolkit. Creative litigators could have pushed even harder (mandamus, anyone?). But I think I’ve carried my point: the Justice Department could’ve put up a fight, and it didn’t. Like Neymar when he’s tapped in the penalty box, the Trump administration flopped.

* * *

In one sense, the furor over the risk adjustment program may be overdrawn. The 2019 rule has been fixed, so we’re really talking about accounts receivable at this point. They’re big accounts receivable, amounting to hundreds of millions of dollars, but most insurers can handle a short delay in getting paid.

In another sense, however, the needless suspension of the risk adjustment program is a signal that the Trump administration remains intent on sabotage. Already, insurers were stiffed on their risk corridor money. Then the cost-sharing payments evaporated. Now, even risk adjustment money may go up in smoke. What’s next? This is no way to run a health program, and no way to run a government.

Whether 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. If it does, this episode may pass without too much pain. But if the administration continues to falsely claim that the litigation has tied its hands, and if it doesn’t move to clarify that 2019 risk adjustment payments are secure, the individual insurance market could deteriorate even more than it already has.

@nicholas_bagley


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