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Health Law

Suit Filed Against Feds Over CMS Risk Adjustment Formula

On July 29, 2016, Minuteman Health Inc. filed suit in Massachusetts against the federal government, naming, as defendants, the US Department of Health and Human Services, the Centers for Medicare and Medicaid Services (CMS) and the heads of both agencies.  The suit alleges that the risk adjustment formula used to calculate which insurance companies have to pay money, and how much, is flawed.  The risk adjustment program in questioned requires insurance companies with lower-risk enrollees to make payments to insurance companies with higher-risk, i.e. more expensive, enrollees.

According to CMS:

The risk adjustment program provides payments to health insurance issuers that attract high-risk enrollees, such as those with chronic conditions, reduces the incentives for issuers to avoid those enrollees, and lessens the potential influence of risk selection on the premiums that plans charge. The risk adjustment program therefore ensures that plans offering a wide range of benefit designs are available to consumers at an affordable premium.[1]


According to Minuteman, this program has resulted in smaller companies having to pay a tax to large insurance companies and illegally penalizes companies with lower premiums. BlueCross BlueShield, one of the industry’s largest insurers, also receives the largest risk adjustment payments.

A similar lawsuit was filed in Maryland on June 13, 2016 by Evergreen Health Cooperative Inc.[2] Evergreen is seeking an injunction to stop the $22 million payment CMS is requiring it to make to CareFirst, a BlueCross BlueShield affiliate. Evergreen alleges that “the current method for calculating risk does not provide an accurate picture of an enrollee’s health status, partly because many customers sign up for plans late in the year and don’t visit a doctor before the determination period ends. CMS counts those individuals as low-risk, even if they are not.”

In an industry with high barriers to entry, where premium increases and lack of competition in the health insurance exchange markets have led to problems for consumers, changes to the risk adjustment formula could allow smaller companies to offer new options to consumers.

Continue to check back as we provide ongoing coverage of these lawsuits.




[1] Summary Report on Transitional Reinsurance Payments and Permanent Risk Adjustment Transfers for the 2015 Benefit Year, Department of Health & Human Services and Centers for Medicare & Medicaid Services, June 30, 2016.

[2] Evergreen Health Cooperative Inc. v. United States Department of Health and Human Services et al, 1:2016cv02039 (Md. Dist. Ct. June 13, 2016).

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.