On December 31, 2019, a three-judge panel of the Tenth Circuit Court of Appeals upheld the methodology adopted by the Department of Health and Human Services (HHS) to administer the risk adjustment program under the Affordable Care Act (ACA). A district court in New Mexico had previously concluded that part of the methodology—the use of statewide average premiums—was arbitrary and capricious. The district court struck down this part of the formula for the years from 2014 to 2018 until HHS could justify its rationale for adopting a budget-neutral risk adjustment program. This decision led to the temporary suspension of about $10.4 billion in risk adjustment payments in summer 2018.
The Tenth Circuit disagreed with the district court’s determination, concluding that HHS’ use of the statewide average premium was not arbitrary or capricious, that the risk adjustment program must be budget neutral, and that HHS should have been given more deference. The ruling reinstates HHS’ risk adjustment methodology and means HHS need not take additional action to justify its methodology for 2014 through 2016. (As explained in more detail below, HHS actions subsequent to the district court decision has rendered the case moot for the years 2017 and 2018.) Risk adjustment payments based on the methodology will continue without disruption.
From here, New Mexico Health Connections (NMHC), the CO-OP in New Mexico that brought the challenge, could ask that the case be reheard en banc by the entirety of the Tenth Circuit or appeal directly to the Supreme Court (although it is unclear that the Court would grant such a request). The Tenth Circuit’s decision may be the final word on litigation over the risk adjustment methodology.