Aug 28, 2018
20 Views

State Reallocation of FRAP Funds Not Barred By the ACA

Written by


As the battle over the future of the Affordable Care Act (the “ACA”) continues, New York State scored a big victory earlier this month with the federal court decision of UnitedHealthcare of New York, Inc., et al. v. Vullo.

The controversy centered on New York State’s risk adjustment program, which is designed to prevent insurers from competing for only the healthiest enrollees. The program requires insurers with enrollees of above-average health for any given plan year to make payments into a common fund.   Those funds are, in turn, used to subsidize insurers who incurred higher claim costs due to having enrollees of below-average health.

 

From 1993 through 2013, New York State had its own risk adjustment program. When the ACA was enacted in 2010, it called for the development of a federal risk adjustment program (the “FRAP”), which the Department of Health and Human Services (“HHS”) was authorized to develop. Although states meeting certain requirements are permitted to administer the FRAP themselves, New York State opted to have HHS implement the FRAP on its behalf.

 

In 2016, HHS published an interim final rule addressing the implementation of the FRAP, wherein HHS acknowledged that certain issuers, including some new and smaller issuers, owed substantial risk adjustment charges that they did not anticipate and encouraged states to examine local approaches to ease these growing pains in the new health insurance market landscape. In response, the New York State Superintendent of Financial Services promulgated an emergency regulation allowing the Superintendent to collect up to 30% of the funds received by carriers in New York State from the FRAP and to redistribute such funds to other carriers in the State pursuant to a State-specific risk adjustment methodology.

The plaintiffs in the action were health insurance companies who offer insurance policies in New York State and who have been, and expect to continue to be, the recipients of risk adjustment payments under the FRAP. The plaintiffs objected to New York State’s emergency regulation, which in part required insurers to turn over funds they had received from the FRAP to the Superintendent so the Superintendent could redistribute such funds to other insurers in New York. The insurers’ primary argument was that the New York State regulation is preempted by the ACA.

 

The District Court for the Southern District of New York found that, under the plain language of the ACA, state regulations are not preempted unless they “prevent the application” of the ACA, which the New York State regulation does not do. The Court further found that there was nothing in the ACA requiring New York State to obtain HHS approval of its emergency regulation. Moreover, statements made by HHS and the Centers for Medicare and Medicaid Services made clear that states are intended to have an ongoing role in risk adjustment policies. All of this, according to the Court, was evidence that the ACA does not preempt the New York State regulation. Accordingly, the Court dismissed the action, allowing the Superintendent to redistribute the FRAP funds paid to New York insurers as the Superintendent deems appropriate.



Source link

Article Categories:
Insurance and Managed Care · Litigation

Leave a Comment

Your email address will not be published. Required fields are marked *