“Billions of dollars in risk-adjustment payments and collections are now on hold,” CMS Administrator Seema Verma said in a statement over the weekend. “CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets.”

The effect of the cut-off will be complex. In the short-term, it will likely favor health insurers that have drawn healthier, less-costly customers. Under the risk-adjustment program, those insurers make payments into a pool is redistributed to plans with sicker, more costly patients. As a result, some plans that had already been doing better financially will benefit from not having to make the payments.

Steadying mechanism

Likewise, plans with more costly groups of customers will suffer. Without the steadying mechanism, that could destabilize the markets in the long term. It will also force insurers to raise premiums for next year, to cover the risk that the stabilizing payments won't get made, said one lobbying group for health insurers.

“This action will significantly increase 2019 premiums for millions of individuals and small business owners and could result in far fewer health plan choices,” Blue Cross Blue Shield Association Chief Executive Officer Scott Serota said in a statement. The Centers for Medicare and Medicaid Services “should take immediate action to reinstate these payment transfers to ensure the market works as intended.”

The program doesn't cost the federal government money. Instead, it moves funds around among insurers to make sure that even people with pre-existing conditions or who are at higher risk of getting sick can get coverage.

Decision time

The move comes just as health insurers were deciding which markets to participate in for next year and going about the complex process of setting the prices they'll charge. Despite the Trump administration's prior attempts to dismantle the law or undermine it, some insurers that have stuck with the program have turned profits, and there have been early signs that some health plans would expand their coverage footprints for next year.

Publicly traded insurers with large presences in Obamacare include Centene Corp. and Molina Healthcare Inc. Suspending the program could theoretically benefit those companies, which each owed other insurers about $1 billion under the program as of March 31, according to regulatory filings. Company representatives didn't comment outside normal business hours.

Some newer insurers have criticized the risk-adjustment program, saying it benefits more established insurers that have the resources to identify more of their customers' ailments. The lawsuit that led CMS to halt payments resulted from a challenge by an insurer in New Mexico that said the program's rules were arbitrary and unfair.

The court decision was “good for small and new health insurance companies, and therefore to anyone who purchases health insurance,” said doctor Martin Hickey, the founder and former CEO of that insurer, New Mexico Health Connections. “Getting this program fixed will lead to a more stable market. It will attract more insurance companies because the risk adjustment will be more predictable and this increased competition will reduce rates.”

Small insurers

Insurers that face the most risk of harm are likely smaller companies with lots of sick customers. Those companies would tend to be owed money and might not have the financial resources to wait for a resolution, or to make up for a shortfall.

“This decision will have serious consequences for millions of consumers,” the trade group America's Health Insurance Plans said in a statement. “It will create more market uncertainty and increase premiums for many health plans — putting a heavier burden on small businesses and consumers, and reducing coverage options.”

The Centers for Medicare and Medicaid Services said it will prove more information soon on how insurers should handle other issues tied to risk-adjustment payments. The agency typically would give insurers information about their 2017 payments in June 2018, and then move the funds in the fall.

The Trump administration could resolve the situation by issuing a new rule for the risk-adjustment program that addresses issues raised by the judge's ruling in the New Mexico case, according to Katie Keith, who consults on health-care issues and blogs for the journal Health Affairs.

The legal situation won't affect the risk-adjustment program in 2019, because the administration already issued a new regulation for next year that accounts for the issues in the New Mexico case, Keith wrote.

The Centers for Medicare and Medicaid Services didn't immediately respond to a question Sunday about writing a new rule to cover the current payments.