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New Mexico Health Connections v. United States Department of Health And Human Services

United States District Court, D. New Mexico

February 28, 2018

NEW MEXICO HEALTH CONNECTIONS, a New Mexico Non-Profit Corporation, Plaintiff,
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; CENTERS FOR MEDICARE AND MEDICAID SERVICES; SYLVIA MATHEWS BURWELL, Secretary of the United States Department of Health and Human Services, in her official capacity and ANDREW M. SLAVITT, Acting Administrator for the Centers for Medicare and Medicaid Services, in his official capacity, Defendants.

          Nancy Ruth Long Long Komer & Associates, P.A. Santa Fe, New Mexico Barak A. Bassman Leah Greenberg Katz Marc D. Machlin Sara Richman Pepper Hamilton, LLP Philadelphia, Pennsylvania Attorneys for the Plaintiff

          Chad A. Readler Acting Assistant Attorney General Joel McElvain Assistant Branch Director Arjun Garg Serena Orloff James R. Powers Attorneys for the Defendants

          MEMORANDUM OPINION AND ORDER

         THIS MATTER comes before the Court on: (i) the Plaintiff's Motion for Summary Judgment, filed April 13, 2017 (Doc. 32)(“Health Connection's Motion”); and (ii) the Defendants' Cross-Motion for Summary Judgment, filed June 1, 2017 (Doc. 34)(“Defendants' Motion”). The Court held a hearing on January 22, 2018. The primary issues are: (i) whether the Administrative Procedure Act, 5 U.S.C. § 702 (“APA”), waives sovereign immunity for all of Plaintiff New Mexico Health Connections' claims; (ii) whether incorporating statewide average premiums in Defendant United States Department of Health and Human Services' (“HHS”)[1] risk-adjustment formula is contrary to law or arbitrary and capricious; (iii) whether HHS' approach to predicting costs for hierarchal condition category (“HCC”) and non-HCC eligible enrollees is arbitrary and capricious; (iv) whether HHS' decisions regarding partial year enrollees and the use of prescription drug data in its risk adjustment model are arbitrary and capricious; and (v) whether HHS' risk adjustment formula effectively bans bronze health insurance plans and is contrary to law. The Court concludes that: (i) the APA waives sovereign immunity for all of the claims presented, thereby giving the Court subject-matter jurisdiction; (ii) HHS' use of statewide average premiums in its risk adjustment methodology is not contrary to law, but is arbitrary and capricious; (iii) HHS' approach to predicting costs for HCC and non-HCC eligible enrollees is not arbitrary and capricious; (iv) HHS' decisions regarding partial year enrollees and the use of prescription drug data in its risk adjustment model are not arbitrary and capricious; and (v) HHS' risk adjustment formula does not, in effect, ban bronze health insurance plans. Accordingly, the Health Connection's Motion is granted in part and denied in part. The Defendants' Motion is granted in part and denied in part. The Court sets aside and vacates the agency action as to the statewide average premium rules and remands the case to the agency for further proceedings. It otherwise dismisses Health Connections' remaining claims with prejudice.

         FACTUAL BACKGROUND

         Health Connections seeks APA review of agency action, so rule 56 of the Federal Rules of Civil Procedure does not apply even though both Health Connections and HHS ostensibly filed motions for summary judgment. See Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir. 1994)(“Reviews of agency action in the district courts must be processed as appeals.” (emphasis in original))(“Olenhouse”); id. (“[M]otions for summary judgment are conceptually incompatible with the very nature and purpose of an appeal.”). See also Jarita Mesa Livestock Grazing Ass'n v. U.S. Forest Serv., 305 F.R.D. 256, 281 (D.N.M. 2015)(Browning, J.). Accordingly, district courts reviewing agency action do not determine whether a “genuine dispute as to any material fact” exists, Fed.R.Civ.P. 56, and instead “engage in a substantive review of the record to determine if the agency considered relevant factors or articulated a reasoned basis for its conclusions, ” Olenhouse, 42 F.3d at 1580. See Jarita Mesa Livestock Grazing Ass'n v. U.S. Forest Serv., 305 F.R.D at 281 (“District courts may not entertain motions for summary judgment or any other procedural devices that shift the appellant's substantial burden -- arbitrary-or-capricious review for questions of fact and Chevron deference for questions of statutory interpretation -- onto the agency.”). While engaging in that substantive review, “the district court should govern itself by referring to the Federal Rules of Appellate Procedure.” Olenhouse, 42 F.3d at 1580. To be clear, the Court recounts the following undisputed facts as a comprehensive factual background for its APA review and not as a summary-judgment analysis.[2]

         1. The Affordable Care Act.

         Congress enacted The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010)(codified at 42 U.S.C. §§ 300gg-1 to -19, 18001-18022)(“ACA”) “to expand coverage in the individual health insurance market.” King v. Burwell, 135 S.Ct. 2480, 2485 (2015)(Roberts, C.J.). To effect that goal, the ACA: (i) bars insurers from considering preexisting medical conditions when deciding whether to sell insurance and determining prices; (ii) requires individuals to make an individual shared responsibility payment to the Internal Revenue Service unless they maintain health-insurance coverage; and (iii) gives certain individuals tax credits to make health insurance more affordable for them. See King v. Burwell, 135 S.Ct. at 2485; 26 U.S.C. § 5000A (describing the individual shared responsibility payment requirement).

         Additionally, the ACA establishes Health Benefit Exchanges (“Exchanges”), online marketplaces where individuals can purchase health insurance and potentially obtain federal subsidies. See 42 U.S.C. §§ 18031-18033. Qualified health plans sold on the Exchanges must provide bronze-level, silver-level, gold-level, or platinum-level coverage. See 42. U.S.C. § 18021(a)(1)(defining a qualified health plan); 42 U.S.C. § 18022(d)(1)(setting out four coverage levels). Bronze-level plans are designed such that, on average, the insurance company pays sixty percent of its policyholders' covered healthcare costs; that percentage increases to seventy, eighty, and ninety percent for silver-, gold-, and platinum-level plans, respectively. See 42 U.S.C. § 18022(d)(1); The ‘Metal' Categories: Bronze, Silver, Gold & Platinum, HealthCare.gov, http://www.healthcare.gov/choose-a-plan/plans-categories/. Consequently, bronze-level plans tend to attract individuals who anticipate fewer healthcare needs, i.e., healthier people, whereas gold-level and platinum-level plans tend to attract individuals who anticipate more healthcare needs, i.e., sicker individuals. See State Health Insurance Exchange Risk Adjustment and Plan Metals Level Memorandum at 3 (dated December 15, 2011)(A.R.000811); Risk Adjustment Implementation Issues, Draft for Discussion Purposes at 31 (dated September 12, 2011)(A.R.004397).

         The ACA also establishes the Consumer Operated and Oriented Plan (“CO-OP”) program. 42 U.S.C. § 18042(a). The CO-OP program provides loans and grants to new nonprofit health-insurance issuers, which fosters competition in the individual health-insurance market. 42 U.S.C. § 18042(a)-(b). See also Memorandum of Law in Support New Mexico Health Connections' Motion For Summary Judgment ¶ 19, at 10, filed April 13, 2017 (Doc. 33)(“Plaintiff Mem.”)(“Congress created the CO-OP program to enhance competition.”).[3]To receive these loans or grants, however, insurers must offer their health-insurance plans on the Exchanges. See 45 C.F.R. § 156.515(c). See also Plaintiff Mem. ¶ 21, at 10.

         The ACA expands healthcare access, but it also increases health-insurance-industry risk. That the ACA requires insurers to cover all individuals, healthy or otherwise, means an unlucky insurer could end up providing coverage to a particularly sickly group of customers. See 42 U.S.C. § 300gg-1(a)(“[E]ach health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.”). The ACA makes things even worse for those unlucky insurers by prohibiting them from responding to the increased cost of providing healthcare coverage to sicker individuals by charging those individuals higher prices. See 42 U.S.C. § 300gg(a)(prohibiting price discrimination based on factors other than geography, age, tobacco use, and whether coverage extends to an individual to a family). Taken together, those two ACA requirements “threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but prohibited from charging them rates necessary to pay for their coverage.” Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 548 (2012).

         The ACA contemplates three kinds of programs -- two temporary and one permanent --that ameliorate the risks it creates. See 42 U.S.C. §§ 18061-18063. First, under transitional reinsurance programs, which operate only from 2014 to 2016, insurers make payments to “an applicable reinsurance entity, ” typically HHS, and reinsurance entities use those funds to provide “reinsurance payments” to insurers that cover “high risk individuals.” 42 U.S.C. § 18061(b)(1). According to HHS, “[t]he reinsurance program will reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers' risk associated with high-cost enrollees.” HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15, 410, 15, 411 (dated March 11, 2013)(A.R.000227-28)(“2014 Final Rule”). “Each State is eligible to establish a reinsurance program, ” but “HHS will establish a reinsurance program for each State that does not elect to establish its own reinsurance program.” 45 C.F.R. § 153.210(a), (c). Second, under the temporary risk corridor program, which also operates only from 2014 to 2016, sufficiently profitable insurers must make payments to HHS while HHS must make payments to sufficiently unprofitable insurers. See 42 U.S.C. § 18062. Those payments, HHS predicts, “will protect against uncertainty in rate setting for qualified health plans by limiting the extent of issuers' financial losses and gains.” 2014 Final Rule, 78 Fed. Reg. at 15, 411 (A.R.000228).

         Third, under permanent risk adjustment programs, “each State shall assess a charge” on insurers “if the actuarial risk of [their] enrollees . . . for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year.” 42 U.S.C. § 18063(a)(1). Likewise, “each State shall provide a payment” to insurers “if the actuarial risk of [their] enrollees . . . is greater than the average actuarial risk of all enrollees in all plans and coverage in such State for such year.” 42 U.S.C. § 18063(a)(2). Risk adjustment programs are “intended to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, and reduce the incentives for issuers to avoid higher-risk enrollees.” 2014 Final Rule, 78 Fed. Reg. at 15, 411 (A.R.000228).

         2. Risk Adjustment Implementation.

         While the ACA refers to “States” assessing charges and providing payments in risk adjustment programs, 42 U.S.C. § 18063(a), it also tells HHS to, “in consultation with States, shall establish criteria and methods to be used in carrying out the risk adjustment activities, ” 42 U.S.C. § 18063(b), and HHS regulations state that it will implement PRA programs for “[a]ny State that does not elect to operate an Exchange, or that HHS has not approved to operate an Exchange, ” 45 C.F.R. § 153.310(a)(2), for “[a]ny State that elects to operate an Exchange but does not elect to administer risk adjustment, ” 45 C.F.R. § 153.310(a)(3), and for, “[b]eginning in 2015, any State that is approved to operate an Exchange and elects to operate risk adjustment but has not been approved by HHS to operate risk adjustment, ” 45 C.F.R. § 153.310(a)(4). Only Massachusetts, however, elected to operate its own PRA program, see HHS Notice of Benefit and Payment Parameters for 2016, 80 Fed. Reg. 10, 750, 10, 759 (dated February 27, 2015)(A.R. 005691)(“2016 Final Rule”), and that program did not last long, see HHS Notice of Benefit and Payment Parameters for 2017, 81 Fed. Reg. 12, 204, 12, 230 (dated March 8, 2016)(A.R.007774)(“2017 Final Rule”)(“We are not recertifying the alternate State methodology for use in Massachusetts for 2017 risk adjustment. Massachusetts and HHS will begin the transition that will allow HHS to operate risk adjustment in Massachusetts in 2017.”).

         HHS thus implements New Mexico's -- and forty-nine other states' -- risk adjustment program. See 2017 Final Rule, 81 Fed. Reg. at 12, 230 (dated March 8, 2016)(A.R.007774)(“HHS will operate risk adjustment in all States for the 2017 benefit year.”). In doing so, HHS annually publishes its risk adjustment methodology. See 45 C.F.R. § 153.320 (“HHS will specify in the annual HHS notice of benefit and payment parameters for the applicable year the Federally certified risk adjustment methodology that will apply in States that do not operate a risk adjustment program.”). HHS' published risk adjustment methodology must describe: (i) how HHS calculates individual risk scores, see 45 C.F.R. § 153.320(b)(1), which are “a relative measure of predicted health care costs” for particular individuals, 45 C.F.R. § 153.20; (ii) how HHS determines a plan's average actuarial risk from individual risk scores, see 45 C.F.R. §§ 153.20, .320(b)(2); and (iii) how HHS uses a plan's average actuarial risk to determine the plan's risk adjustment payments and charges, see 45 CFR §§ 153.20, .320(b)(3).

         HHS' risk adjustment methodology[4] “predict[s] plan liability for an enrollee based on that person's age, sex, and diagnoses (risk factors), producing a[n individual] risk score.” 2014 Final Rule, 78 Fed. Reg. at 15, 419. HHS calculates a health plan's average risk score by averaging its enrollees' individual risk scores; each individual risk score is weighted by the number of months the relevant individual was enrolled in the health plan. See 2014 Final Rule, 78 Fed. Reg. at 15, 432. HHS multiplies the “State average premium” by several plan-cost factors, “relative measures that compare how [a] plan[] differ[s] from the market average, ” including the plan's average risk score to produce to produce a plan-premium estimate. 2014 Final Rule, 78 Fed. Reg. at 15, 430-31. “Multiplying the plan['s] average risk score by the State average premium shows how a plan's premium would differ from the State average premium based on the risk selection experienced by the plan.” 2014 Final Rule, 78 Fed. Reg. at 15, 431. HHS also produces a second plan-premium estimate by multiplying the state average premium by plan-cost factors other than the plan's average risk score. 2014 Final Rule, 78 Fed. Reg. at 15, 430. HHS' payment transfer formula takes the first plan-premium estimate and subtracts the second, which “provides a per member per month (PMPM) transfer amount for a plan.” 2014 Final Rule, 78 Fed. Reg. at 15, 431. Finally, HHS multiplies a plan's per member, per month transfer amount by its number of “billable member months . . . to calculate the plan's total risk adjustment payment.” 2014 Final Rule, 78 Fed. Reg. at 15, 431.

         Each year, HHS monitors and updates the risk adjustment model “with more recent data, ” but it does not “reconsider[] the entire methodology anew each year.” Defendant Mem. ¶ 14, at 13. See Defendant Mem. ¶ 15, at 13; Plaintiff Mem. ¶ 7, at 5-6. There is a lag between HHS' promulgation of annual risk adjustment formula rules and the data it received from issuers, so, “[b]y the time results for the program's first year (2014) were announced, ” HHS had already promulgated its annual rules for 2015 and 2016. Defendant Mem. ¶¶ 4-6, 16, at 10, 14 (noting that it takes two calendar years between publication of a benefit rule and the announcement of risk adjustment payments under that rule). See Plaintiff Mem. ¶ 11, at 7. For its 2017 rule, HHS updated its methodology for future years based on data it had collected from its 2014 results. See Defendant Mem. ¶ 16, at 14 (citing 2017 Final Rule, 81 Fed. Reg. at 12, 218-20 (A.R.007762-64)). HHS adjusted its 2018 rule to account for partial-year enrollees and began using limited pharmaceutical data to help measure individuals' relative healthiness. Defendant Mem. ¶ 18, at 14 (citing HHS Notice of Benefit and Payment Parameters of 2018, 81 Fed. Reg. 94, 058, 94, 072-76 (dated December 22, 2016)(A.R.009609-13)(“2018 Final Rule”)). Health Connections supported the partial-year enrollee adjustment, but urged HHS to apply the adjustment retroactively to risk adjustment transfers for 2014 and 2015. See Declaration of Martin Hickey, MD ¶ 98, at 24 (dated October 5, 2016)(NMHC000886)(“Hickey Declaration”).

         3. Health Connections.

         Health Connections is a CO-OP program participant, and it has operated in New Mexico since 2014. See Hickey Declaration ¶ 27, at 5 (NMHC000867). Health Connections signed a loan agreement with HHS to fund Health Connections' initial formation and New Mexico operations. See Hickey Declaration ¶ 28, at 5 (NMHC000867). Health Connections began enrolling members in October, 2013 and providing coverage in January, 2014. See Hickey Declaration ¶ 27, at 5 (NMHC000867). Health Connections has grown from 14, 000 members in 2014, to 44, 500 members in 2016. See Hickey Declaration ¶ 33, at 6 (NMHC000868).

         Health Connections offers -- and has offered since its inception -- the lowest or second-lowest cost health insurance plan in New Mexico. See Hickey Declaration ¶ 31, at 6 (NMHC000868). It has offered such affordable plans even while serving unhealthy enrollees; New Mexico has the highest prevalence of Hepatitis C in the nation, and Health Connections enrolled many members of that population in its plans. See Patient Protection and Affordable Care Act Comments to HHS Notice of Benefit and Payment Parameters for 2018 at 19-20 (dated October 6, 2016)(NMHC0000853-54)(“2018 Comments”). At a meeting of the National Association of Insurance Commissioners, the Superintendent of Insurance of New Mexico stated that Health Connections' entry into the health-insurance marketplace increased competition and saved New Mexicans over half a billion dollars. See Hickey Declaration ¶ 36, at 7, (NMHC000869).

         While many health-insurance companies aim for a profit margin between two and five percent of their premiums, see Hickey Declaration ¶ 19, at 4 (NMHC000866), for 2014, many small health-insurance companies were required to pay over ten percent of their premiums as risk-adjustment charges, see Centers for Medicare & Medicaid Services, United States Department of Health and Human Services, Choices at 2 (dated April 22, 2016)(NMHC001018)(“Choices”). For that year, HHS assessed Health Connections a $6, 666, 798.00 risk-adjustment charge, which is equal to 21.5% of Health Connections' 2014 premiums. See Hickey Declaration ¶ 17, at 3, (NMHC000865). For 2015, HHS assessed Health Connections a $14, 569, 495.74 risk-adjustment charge, which is equal to 14.7% of Health Connections' 2015 premiums. See Hickey Declaration ¶ 18, at 4 (NMHC000866).

         Risk-adjustment charges have, thus, forced several CO-OP program participants to close their doors. See 2018 Comments at 3 (NMHC000837); U.S. House of Representatives Committee on Energy and Commerce, Implementing Obamacare: A Review of CMS' Management of the Failed CO-OP Program at 19-22 (dated September 13, 2016)(NMHC000910-13); Technical Issues with ACA Risk Adjustment and Risk Corridor Programs, and Financial Impact on New, Fast-Growing, and Efficient Health Plans at 11-13, (NMHC001000-02); Connecticut Insurance Department, Insurance Department Places HealthyCT Under Order of Supervision, at 1-2 (dated September 26, 2016)(NMHC001351-52)). Several state insurance commissioners have expressed concern about the risk adjustment program. For example, Maryland's Insurance Commissioner testified to Congress:

Over the past few years, new innovative health insurance plans have been created that are providing enhanced competition and patient care. And it is working. For year-end 2014, Carefirst had a 91% market share of the individual market in Maryland. Today, it is 57%, due in part to a more competitive marketplace. These carriers have the potential to continue but their ability to do so is severely jeopardized by the adverse and perhaps fatal financial impact caused by the technical shortcoming of the current risk adjustment and risk corridor programs.
. . . .
The risk adjustment formula is of concern to state regulators because it has proven to place newer carriers at a distinct disadvantage. For example, the risk adjustment formula quantifies an enrollee's health status based on age and diagnoses recorded during the course of the year. New carriers have very limited information on the health status or previous claims history of the applicants. Therefore, the carrier's population may appear healthier than it actually is if some diagnoses are not captured which may result in improper risk adjustment payments.

See Written Testimony of Mr. Al Redmer, Jr., Commissioner Maryland Insurance Administration at 1 (NMHC001331). The New York Superintendent of Financial Services had similar concerns:

DFS [Department of Financial Services] is concerned that the risk adjustment program has created inappropriately disparate impacts among health insurance issuers in New York and unintended consequences. Specifically, it is DFS's understanding that, based on the data accumulated by CMS for the upcoming report on June 30, 2016, new and smaller issuers generally are considered to have had relatively healthy members than their larger and more established competitors. CMS's anticipated determination appears to be unduly impacted by the dates of diagnoses or recording of diagnoses of members' medical conditions rather than actual relative health of the members. This disparity may be because the new and smaller health insurers have not been in operation long enough to have amassed the long term data and records management systems that have helped to allow the large, established health insurers to convince CMS that their members are relatively unhealthy and, concomitantly, will allow them to receive large payments from the risk adjustment program.

         Letter from Maria T. Vullo, Superintendent of Financial Services of the State of New York, to Sylvia M. Burwell, Secretary of Health and Human Services, and Andrew Slavitt, Acting Administrator for the Centers for Medicare and Medicaid Services at 1-2 (dated June 28, 2016)(NMHC001335-36).

         PROCEDURAL BACKGROUND

         Health Connections filed its initial complaint on July 29, 2016. See Complaint for Declaratory and Injunctive Relief, filed July 29, 2016 (Doc. 1). Health Connections subsequently filed an amended complaint. See Amended Complaint for Declaratory and Injunctive Relief at 1, filed January 12, 2017 (Doc. 21)(“Complaint”). Health Connections alleges that HHS violated “Section 1343 of the ACA and the APA, 5 U.S.C. § 706.” Complaint at 54. Health Connections filed the Health Connections' Motion on April 13, 2017, see Health Connections Motion at 1, and HHS filed the Defendants' Motion on June 1, 2017, see Defendants' Motion at 1.

         1. The Plaintiff Mem.

         Health Connections argues that using of the state average premium when calculating risk adjustment transfer payments exceeds HHS' authority under the ACA and is arbitrary and capricious. See Plaintiff Mem. at 24. Health Connections observes that, under the ACA, “an issuer may only be assessed a charge under the [risk adjustment] program ‘if the actuarial risk of the enrollees of such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year.'” Plaintiff Mem. at 24 (quoting 42 U.S.C. § 18063(a)(1)). It follows, according to Health Connections, that “risk adjustment assessments cannot be based on factors other than actuarial risk, and HHS is mandated to follow this clear statutory text.” Plaintiff Mem. at 24.

         Health Connections contends that HHS' use of the state average premium when calculating risk adjustment transfer payments is contrary to that statutory mandate, because the state average premium “is very different than relative actuarial risk.” Plaintiff Mem. at 25. According to Health Connections, health-insurance companies base their premiums -- and, by extension, the state average premium -- “upon not only whether the population of insureds are healthier or sicker, but also on whether an issuer can control its costs by paying lower prices to hospitals and doctors, by doing a better job managing its members' medical care, by reducing administrative overhead, and by controlling other costs.” Plaintiff Mem. at 25. Health Connections adds that using the state average premium is particularly unfair, because the state average premium is weighted by each insurer's marketshare, so insurers “with dominant market positions -- such as BCBS [Blue Cross Blue Shield] in New Mexico -- drive the statewide average premium through their own prices, which are typically quite high.” Plaintiff Mem. at 17. Health Connections contends that, instead of the state average premium, HHS should calculate each insurer's risk adjustment transfer payment using that insurer's average premium. See Plaintiff Mem. at 17-18.

         Health Connections then addresses why, in its view, HHS' proffered justifications for using the state average premium are unavailing. See Plaintiff Mem. at 29. Health Connections asserts that HHS gave two justifications for using state average premiums: (i) doing so assures that risk adjustment is budget neutral; and (ii) doing so provides a straightforward and predicable benchmark. See Plaintiff Mem. at 21-22. “The agency's main point was that use of the statewide average premium would be easy from an administrative standpoint, and the agency could achieve budget neutrality without having to make further adjustments or calculations.” Plaintiff Mem. at 22.

         Health Connections argues that, contrary to HHS' first justification, budget neutrality does not justify using the state average premium, because “there is no statutory requirement that risk adjustment be budget neutral, ” i.e., that risk adjustment payments that insurers make to HHS must equal the risk adjustment payments that HHS makes to insurers. Plaintiff Mem. at 22. Health Connections argues that the Court should not defer to HHS' budget-neutrality determination, because “HHS has no specialized expertise in budgeting and appropriations, and thus its views on budget neutrality are entitled to no deference.” Plaintiff Mem. at 22 (citing King v. Burwell, 135 S.Ct. 2480, 2489 (2015)). Health Connections also argues that deference is inappropriate, because “HHS has never explained why it believes the program must be budget neutral, ” and “[t]his Court owes no deference to naked assertions by agencies that lack reasoned explanation.” Plaintiff Mem. at 22.

         Health Connections continues by explaining why the Court -- when construing the ACA's language concerning risk adjustment for itself and not deferring to HHS -- should conclude that risk adjustment need not be budget neutral. See Plaintiff Mem. at 22-23. Health Connections notes that there is no explicit ACA language requiring budget neutrality for risk adjustment, see Plaintiff Mem. at 22, whereas 42 U.S.C. § 18061(b)(1)(B)'s language regarding reinsurance -- which is, essentially a temporary version of risk adjustment -- “expressly made payments out subject to issuer's payments in, ” Plaintiff Mem. at 23. See 42 U.S.C. § 18061(b)(2)(B)(“[T]he applicable reinsurance entity collects payments under subparagraph (A) and uses amounts so collected to make reinsurance payments to health insurance issuers described in subparagraph (A) that cover high risk individuals in the individual market . . . .”). “The lack of such a budget neutrality provision in the risk adjustment provision of the ACA strongly suggests that Congress intentionally omitted it and meant for the programs to be administered differently.” Plaintiff Mem. at 23.

         Health Connections also finds it significant that the risk corridors program, like the risk adjustment program, contains no explicit budget neutrality requirement, but HHS concluded that the risk corridor program does not need to be budget neutral, and “the GAO [Government Accountability Office] opined that the general appropriation to HHS for carrying out its ‘other responsibilities' would be available for risk corridors program liabilities.” Plaintiff Mem. at 23. Health Connections reasons that HHS could likewise fund risk adjustment through its general appropriations if HHS implements risk adjustment in a way that is not budget neutral. See Plaintiff Mem. at 24. Health Connections adds that, even “if HHS's agency budget lacked sufficient appropriations, underpaid issuers could sue in the Court of Federal Claims and recover any unpaid monies from the Judgment Fund.” Plaintiff Mem. at 24. Health Connections also argues, in the alternative, that even if the risk-adjustment program must be budget neutral, HHS need not use “a formula in which it will be mathematically impossible for payments in and out to ever be imbalanced, ” Plaintiff Mem. at 24, because HHS could still base assessments and payments on each issuer's own premium, and make any necessary pro rata adjustments if there is a shortfall of payments in, ” Plaintiff Mem. at 25.

         Turning to HHS' second justification for using the state average premium when calculating risk adjustment payments, i.e., that doing so provides a straightforward and predicable benchmark, Health Connections asserts that HHS has “no explanation or backup data for this statement.” Plaintiff Mem. at 25. Health Connections explains, on the contrary, that the state average premium “is a black box for smaller issuers like NMHC, ” because larger insurers' pricing decisions “drive the statewide average.” Plaintiff Mem. at 25. Health Connections also explains why it cannot predict its risk-adjustment liability for one year by looking at its liability in the previous year: “NMHC must set its premiums for a given benefit year in the previous calendar year, so that, for example, it had to finalize 2015 premiums in 2014[, but] NMHC does not lean of its risk adjustment liability [for a given benefit year] until well into the following year.” Plaintiff Mem. at 25-26.

         Health Connections then turns its focus from the substance of HHS' risk-adjustment regulations to HHS' rulemaking process. Health Connections states that, “[i]n response to HHS's December 2, 2015 publication of proposed rulemaking for the 2017 benefit year, NMHC and numerous others submitted voluminous comments attacking the agency's use of the statewide average premium.” Plaintiff Mem. at 27-28.[5] According to Health Connections, HHS refused to respond directly to those comments when it published its final rule on March 8, 2016, because that that final rule states only: “‘We did not propose changes to the transfer formula, and therefore, are not addressing comments that are outside the scope of this rulemaking.'” Plaintiff Mem. at 28 (quoting 2017 Final Rule, 81 Fed. Reg. at 12, 230 (A.R.007774)). Again according to Health Connections, “[t]his refusal to respond to detailed, reasoned comments from stakeholders is the very epitome of arbitrary and capricious behavior.” Plaintiff Mem. at 28. Health Connections observes that, when “HHS next published its proposed new rulemaking for the 2018 benefit year on September 6, 2016, ” HHS sought comments on removing some administrative expenses from the state average premium when calculating risk-adjustment payments. Plaintiff Mem. at 29. Health Connections also observes that HHS' final rule for the 2018 benefit year reduces the state average premium by 14 percent when calculating risk adjustment payments to reflect the portion of an insurer's administrative costs that do not vary in response to how healthy or sickly the insurer's customers are. See Plaintiff Mem. at 30.

         Health Connections maintains, however, that this modification is “too little and too late, ” because it only applies prospectively and it does not address all of Health Connections' concerns. Plaintiff Mem. at 30. Health Connections contends that HHS' 2018 rule “admit[s] that it was inflating risk adjustment assessments in 2014 and 2015 -- and will do so again for 2016 and 2016 -- by not applying this 14% adjustment, ” but does nothing to address that inflation. Plaintiff Mem. at 30. Health Connections argues that, “[a]t a minimum, if the agency has determined that its formula was overstating actuarial risk by a calculated percentage, then that correction must be made for all years of the program.” Plaintiff Mem. at 30. Health Connections also argues that, notwithstanding HHS' modification of the risk adjustment transfer formula to account for administrative costs, the agency “ignores that there are factors driving premium levels that are not either risk selection or administrative costs” -- such as “NMHC's innovative medical management” and its “success in securing lower prices from hospitals and doctors” -- so “HHS is therefore still assessing charges based on factors other than actuarial risk.” Plaintiff Mem. at 31.

         Health Connections next argues that, regardless of HHS' use of state average premiums, HHS inaccurately measures actuarial risk in the first place. See Plaintiff Mem. at 40. According to Health Connections, HHS' risk adjustment formula “begins by calculating a risk score for each enrollee.” See Plaintiff Mem. at 40. Health Connections argues that the risk score reflects the relative health, and thus, the predicated healthcare costs, of each enrollee. See Plaintiff Mem. at 40. According to Health Connections, to calculate this risk score, an enrollee first receives a coefficient based on age and gender. See Plaintiff Mem. at 40. It continues that the coefficient is increased if the enrollee has been diagnosed with what HHS calls a HCC, which includes diseases like diabetes or HIV/AIDS. See Plaintiff Mem. at 41. Essentially, according to Health Connections, the HCC number is added to the age/gender number to calculate an enrollee's risk score. See Plaintiff Mem. at 41.

         Health Connections believes this risk score calculation system is flawed for several reasons. First, Health Connections argues that this system under-predicts “the costs of enrollees who do not qualify for an HCC.” Plaintiff Mem. at 41. For example, it contends that an individual without an HCC could still catch the flu, break a bone, or utilize preventive care services, none of which the HCC coefficient captures. See Plaintiff Mem. at 41. Health Connections therefore concludes that HHS underestimates health care costs for enrollees without an HCC. See Plaintiff Mem. at 41. According to Health Connections, this risk score calculation produces an absurd result, because Health Connections tries to improve its members' health so that they do not develop HCC conditions, but if Health Connections' enrollees do not have HCC conditions, then Health Connections loses money. See Plaintiff Mem. at 42. Insurance carriers are, therefore, according to Health Connections, given financial incentives not to improve their enrollees' health, which was not what Congress intended. See Plaintiff Mem. at 42.

         Health Connections contends that, to fix this problem, it submitted a proposal explaining a solution authored by former Centers for Medicare and Medicaid Services Chief Actuary Rick Foster. See Plaintiff Mem. at 44 (citing Richard S. Foster, Method to Address Estimation Bias in the HHS-HCC Risk Adjustment Model, at 1 (dated, July 15, 2016)(NMHC001042)(“Foster Memorandum”)). According to Health Connections, HHS did not respond to this proposal at all. See Plaintiff Mem. at 44 (citing 2018 Final Rule, 81 Fed. Reg. at 94, 082-83 (dated December 22, 2016)(A.R.009619-20)). Health Connections contends that ignoring this proposal, submitted as a response to HHS' proposed rules, is arbitrary and capricious, see Plaintiff Mem. at 44 (citing Allied Local and Regional Mfrs. Caucus v. U.S. E.P.A., 215 F.3d at 79-80), because “the protections of notice and comment rulemaking under the APA are meaningless if the agency were free to simply ignore comments from the public.” Plaintiff Mem. at 44-45 (citing Home Box Office, Inc. v. F.C.C., 567 F.2d 9, 35 (D.C. Cir. 1977)).

         A second flaw with HHS' risk adjustment formula, according to Health Connections, is that it does not accurately identify enrollees who should qualify for an HCC. Plaintiff Mem. at 45. Health Connections contends that the inaccuracy occurs for two reasons; first HHS does not account for “partial year enrollees” and, second, HHS does not use prescription drug data when calculating risk scores. Plaintiff Mem. at 45. Regarding the first criticism, a partial year enrollee is one who is not enrolled in a given carrier's health insurance plan for the full calendar year. See Plaintiff Mem. at 45. According to Health Connections, if a partial year enrollee has an HCC condition but receives his or her diagnosis during the part of the year in which he or she is not on the given carrier's plan, then “the enrollee's risk score will be understated because the plan cannot report the HCC score.” Plaintiff Mem. at 45. (citing Hickey Declaration ¶¶ 94-95, at 22-23 (NMHC000884-85)).

         Health Connections' contends that its second criticism, HHS' failure to use prescription drug data, is related to the first. See Plaintiff Mem. at 46. According to Health Connections, because individuals do not always receive an HCC diagnosis during their enrollment periods, using prescription drug data, according to Health Connections, is a good factor to use in calculating an enrollee's risk score. See Plaintiff Mem. at 46. Health Connections argues that, for example, an enrollee may have been diagnosed with diabetes before enrolling in a given carrier's health insurance plan. See Plaintiff Mem. at 46. According to Health Connections, that enrollee, however, regularly fills insulin prescriptions. See Plaintiff Mem. at 46. According to Health Connections, if HHS were to use that information, then it could accurately capture the enrollee's otherwise missed diagnosis. See Plaintiff Mem. at 46. Health Connections asserts that it “is particularly hard hit by the exclusion of prescription drug data, because NMHC prevents unnecessary hospital and physician encounters by proactively engaging with its members to take their medications.” Plaintiff Mem. at 47.

         According to Health Connections, HHS finally addressed the issues of partial year enrollees and prescription drug data in the spring of 2016. See Plaintiff Mem. at 49. Health Connections argues, however, that HHS did not fix the partial year enrollment problem until 2017 and will not begin to use prescription drug data until 2018. See Plaintiff Mem. at 49. Health Connections asserts that HHS should apply these changes retroactively. See Plaintiff Mem. at 50 (citing National Fuel Gas Supply Corp. v. F.E.R.C., 59 F.3d 1281 (D.C. Cir. 1995)).

         Finally, Health Connections argues that HHS has de facto banned bronze health insurance plans in violation of the ACA. See Plaintiff Mem. at 50. According to Health Connections, in the ACA exchanges, four types of insurance plans exist. See Plaintiff Mem. at 50 (citing Hickey Declaration ¶ 73, at 17 (NMHC000879)). Health Connections contends that bronze plans require the issuer to cover sixty percent of the insured's health care costs, seventy percent in silver plans, eighty percent in gold plans, and ninety percent in platinum plans. See Plaintiff Mem. at 50 (citing Hickey Declaration ¶ 74, at 17, (NMHC000879)). A bronze plan, therefore, has the lowest premium, but the highest deductible. See Plaintiff Mem. at 50 (citing Hickey Declaration ¶ 74, at 17, (NMHC000879)). According to Health Connections, consumers who do not have significant health care costs or who have limited financial resources often purchase bronze plans, because bronze plans have the lowest premiums. See Plaintiff Mem. at 50 (citing Hickey Declaration ¶ 74, at 17 (NMHC000879)). Health Connections argues that, “[b]ecause bronze plans are low-priced and attract a healthier population, the use of the state average premium and the underestimation bias against healthier enrollees particularly hammer these products.” Plaintiff Mem. at 50. Essentially, Health Connections contends that HHS' risk adjustment formula makes it hard for bronze plans to be profitable. See Plaintiff Mem. at 51. Because the ACA expressly provides for bronze plans to be available, see Plaintiff Mem. at 51 (citing 42 U.S.C. 18022(d)(1)(A)), Health Connections concludes that Congress must have intended that insurers be able to issue bronze plans without losing money. See Plaintiff Mem. at 51-52. Health Connections thus asks the Court to remand this case to the agency so that HHS can “grapple with the question of how the agency can prevent the risk adjustment program from gutting Congress's intent to have viable bronze product offerings.” Plaintiff Mem. at 52. In conclusion, Health Connections requests the Court to enter an order vacating HHS' risk adjustment regulations for the years 2014-2018, and order HHS to revise its regulations consistent with the Court's judgment. See Plaintiff Mem. at 52.

         2. The Defendant Mem.

         HHS filed the Defendant Mem. First, HHS argues that all of Health Connections' claims fail, because HHS' methodology is an “eminently reasonable and well-considered approach [to] an exceptionally complex actuarial challenge, ” and that its methodology “easily satisfies the APA's standard of review.” Defendant Mem. at 15. According to HHS, Health Connections “erroneously combines its challenges to the 2014-2018 Rules in a single, multi-year attack” even though APA review is based on “the record before the agency at the time it made its decision.” Defendant Mem. at 18. HHS contends that the Court should conduct its analysis according to HHS' record at the time of the 2014 benefit year “and then proceed to consider whether the modifications prosed in subsequent years alter that assessment for those years.” Defendant Mem. at 18. HHS asserts that its use of the state average premium is consistent with the statutory text and is reasonable. See Defendant Mem. at 18. It argues that § 1343 does not bar the use of state average premiums, because that section's only specific requirement is for the program to assess a charge on program-eligible plans if the enrollees' actuarial risk is less than the state's average actuarial risk and to make a payment to such plans if the actuarial risk of their enrollees is greater than the state's actuarial risk. See Defendant Mem. at 18-19. According to HHS, Congress “did not impose any requirements as to the methodology for determining the amounts of charges or payments.” Defendant Mem. at 19. Moreover, HHS asserts, it is not methodologically possible to “devise a transfer formula that reflects only actuarial risk, as NMHC suggests, ” because, even if HHS could “perfectly isolate actuarial risk from other confounding variables . . ., a formula based solely on actuarial risk would yield only a raw risk score, ” and a raw risk score “measures the expected relative cost of a particular pool of enrollees compared to the state-wide average, but it does not predict actual expenditures.” Defendant Mem. at 19. Consequently, HHS asserts, its methodology had to consider cost factors. See Defendant Mem. at 19. HHS contends that

NMHC's proposed alternative to the state average premium (use of a plan's own premium) would suffer the exact same purported flaw as the Department's approach: it would not “be based solely upon actuarial risk.” Rather, it would be based on pricing choices made by individual insurance plans reflecting the very same factors that NMHC suggests are improper, such as issuer costs, administrative overhead, efficiency factors, and the like. But under NMHC's approach, risk adjustment transfers would vary based on pricing choices made by individual plans, whereas the Department's approach adopts a weighted average of all such pricing in a state, thereby ensuring that the formula is uniform and stable and minimally distorted by any extreme or inaccurate pricing decisions by individual insurance plans. Because Congress said nothing about how risk adjustment transfers must be calculated, NMHC's statutory argument should be rejected.

Defendant Mem. at 19-20 (citations omitted).

         Next, HHS argues that the state average premium is not arbitrary and capricious for three reasons. See Defendant Mem. at 20. First, plan premiums contain a risk-selection element, because “‘healthier' plans can charge less than ‘sicker' plans” given that healthier members consume less health care. Defendant Mem. at 20. HHS contends that “a risk adjustment transfer based on a healthier plan's lower premium might not fully capture the cost of treating sicker enrollees or adequately compensate sicker plans for their sicker membership.” Defendant Mem. at 20-21. Second, HHS argues that a risk adjustment charge based on a healthy plan's lower premium “might not adequately capture the higher cost of treating sicker members” and would, therefore, not fulfill the program's objective to “reduce incentives for plans to avoid high risk enrollees.” Defendant Mem. at 21 (citing 2014 Final Rule, 78 Fed. Reg. at 15, 411 (dated March 11, 2013)(A.R.0000228)). HHS argues that the state average premium more accurately measures and distributes the costs of insuring all individuals in a risk pool. See Defendant Mem. at 21. Third, HHS argues that, because the risk adjustment program is “self-funded and budget neutral, ” payments and charges must balance, but using a plan's own premium for transfer calculations would make that impossible. Defendant Mem. at 22. If healthy plans pay lower charges, and sicker plans receive higher payments, HHS argues,

[b]ridging the gap between payments and charges therefore would require one of three after-the-fact adjustments: (1) reduce payments to sicker plans, (2) increase charges to healthier plans, or (3) split the difference between sicker and healthier plans. NMHC does not appear to advocate or the latter two options, see Pl.'s Mot. at 24-25, but in any event, each option has drawbacks. Reducing payments to sicker plans would likely result in sicker plans raising their premiums to offset the anticipated expense of their sicker membership. Increasing charges for healthier plans would eliminate the incentives of sicker plans to control costs. And finally, splitting the difference between healthier and sicker plans (by increasing charges and decreasing payments) would be similar to using the state average premium, but it would require an after-the-fact adjustment that would not be known until the program year concluded.

         Defendant Mem. at 22-23 (citations omitted). HHS contends that, given the advantages of using state average premiums, “[t]he record thus amply demonstrate[s] that the Department considered the relevant policy choices and rationally elected to use a state-wide average.” Defendant Mem. at 23.

         HHS disputes Health Connections' arguments in opposition to using state average premiums. See Defendant Mem. at 23-26. First, HHS contends that using the state average premium does not encourage gaming by large insurers, because HHS' transfer formula “does not directly reflect a plan's actual premiums at all; rather, it calculates the difference between the plan's expected costs with risk selection and the plan's expected costs without risk selection, using the state average premium on both sides of the equation as an estimation of average cost.” Defendant Mem. at 23-24 (emphasis in original). HHS contends that its approach “neither penalizes cost-cutting nor rewards inefficiency, ” but rather “strikes a middle ground” by assuming an average level of efficiency. Defendant Mem. at 24. According to HHS, Health Connections' proposed system “would encourage sicker plans to charge higher premiums to increase their payments and healthier plans to charge lower premiums to reduce their charges” because “plans with the same risk score would owe or receive different amounts based on individual pricing decisions.” Defendant Mem. at 24. Second, HHS asserts that using the state average premium does not penalize cost-cutting plans, because its regulations require providing advance notice of risk adjustment formula so that an issuer can “price any expected payments or charges into their rates.” Defendant Mem. at 24. Third, HHS contends that it provided considerable information, data, and research related to its decision, which “amply demonstrate[s] the Department's rationale for adopting the state average premium.” Defendant Mem. At 25. Additionally, HHS contends that it must “only provide a ‘rational connection between the facts found and the choice made, ' such that the ‘path may reasonably be discerned.'” Defendant Mem. at 26 (quoting Encino Motorcars, LLC v. Navarro, 136 S.Ct. at 2125.)

         Next, HHS contends that its use of HCCs is reasonable. See Defendant Mem. at 26-28. HHS asserts that its risk adjustment model is not meant to transfer risk of random events like accidents, but rather is meant to compensate plans for enrollees' predicable medical conditions that could influence enrollment decisions. See Defendant Mem. at 27. HHS also contends that its model already incorporates costs of treating random events. See Defendant Mem. at 27-28. HHS also argues that its approach to capturing HCCs is reasonable, because, HHS contends, HHS “considered and reasonably addressed” whether to adjust its methodology for partial year enrollment and incorporate prescription drug data. Defendant Mem. at 28-29. See Defendant Mem. at 29-34. HHS further contends that the program's approach to its bronze plans is reasonable. See Defendant Mem. at 34-37. HHS asserts that it “grappled with” the relationship between state exchange actuarial values and its risk adjustment program, ultimately “adopting different risk score models for each metal level plan and catastrophic plan.” Defendant Mem. at 35. HHS explains that it

also included an adjustment for actuarial value in the transfer formula so that the program does not compensate plans for differences in actuarial value that are already reflected in the premiums charged by such plans. However, the Department reasonably elected not to adopt separate risk pools for the different metal level plans because “this approach would fail to correct for systematic risk selection across ‘metal levels[.'] That is, low risk enrollees would tend to migrate to plans with a lower actuarial value . . . which would then gain a premium advantage attributable to risk selection. This result would not address the mandate of the ACA, which requires that transfer payments be made between plans based on the[] actuarial risk of their enrollees.” Thus, to the extent NMHC suggests that the Department has not already exhaustively “grappled” with the relationship between metal levels and risk adjustment, it is wrong.

         Defendant Mem. at 35 (citations omitted)(quoting State Health Insurance Exchange Risk Adjustment and Plan Metals Level at 6 (dated December 15, 2011)(A.R.000814-15). HHS also disputes Health Connections' contention that HHS' methodology is arbitrary and capricious for not relieving bronze plans of the financial consequences of risk adjustment, arguing that: (i) bronze plans typically have healthier enrollees, and § 1343 requires those enrollees to pay risk adjustment charges; and (ii) “administrative review is not based on hindsight and it does not appear that Health Connections raised this outcome-oriented critique until the 2018 rulemaking.” Defendant Mem. at 36.

         HHS also contends that the 2015-2017 rules are consistent with the statute and are reasonable. See Defendant Mem. at 36. According to HHS, it was not arbitrary and capricious to not respond to comments addressing issues beyond the scope of proposed rules, because HHS was “not obligated to reconsider methodological choices it already had exhaustively considered or to respond anew to comments questioning those choices.” Defendant Mem. at 36.

         Next, HHS asserts that the 2018 rule is consistent with the statute and is reasonable. See Defendant Mem. at 37-40. HHS notes that it has addressed many of Health Connections complaints by adopting a downward adjustment to the state average premium and preventative health costs, including additional partial year enrollment factors, and making limited use of prescription drug data. See Defendant Mem. at 37. As to Health Connections' “remaining grievances, ” HHS asserts that: (i) the adjustment to the state average premium is reasonable, because “there is nothing arbitrary and capricious about using a mean to approximate overall health costs in a state nor does section 1343 require risk adjustment transfers” to certain individuals, Defendant Mem. at 38; (ii) HHS reasonably addressed a particular proposed formula adjustment concerning estimation bias; and (iii) its methodology does not make it impossible for bronze plans to be profitable, and its internal process to improve its models means that “judicial relief is unnecessary, ” Defendant Mem. at 40-41.

         HHS also argues that no basis for Health Connections' requested relief exists. See Defendant Mem. at 41-44. First, HHS asserts that the Court lacks jurisdiction to award primarily monetary relief. See Defendant Mem. at 41. HHS contends that “although NMHC nominally seeks an injunction requiring the Department to revise its risk adjustment formula . . . the thrust of its suit is for a refund of money already paid to the Department.” Defendant Mem. at 41. Second, HHS argues that, even if the sought refunds are not considered money damages, “vacatur should still be denied because vacating the risk adjustment methodology for all prior years would harm plans that enrolled sicker than average enrollees.” Defendant Mem. at 43.

         3. The Plaintiff Reply.

         Health Connections replied. See Plaintiff's Reply and Opposition to Defendant's Cross-Motion for Summary Judgment at 1, filed July 13, 2017 (Doc. 40)(“Plaintiff's Reply”). Health Connections first argues that HHS “has no discretion to ignore real world developments.” Plaintiff's Reply at 8. Specifically, Health Connections contends that “under HHS's logic because the only rulemaking that should be reviewed is the original one for the 2014 benefit year . . . the only evidence the Court should review is what was before the agency in 2012/2013 during that first rulemaking.” Plaintiff's Reply at 8 (citing Defendant Mem. at 12-13, 17-18, 27, 36-37). Health Connections contends that this logic is incorrect, because “‘when there is a known or significant change in the data underlying an agency decision, the agency must either take that change or trend into account, or explain why it relied solely on data pre-dating that change or trend.'” Plaintiff's Reply at 8 (quoting Zen Magnets, LLC v. Consumer Prod. Safety Comm'n, 841 F.3d 1141, 1149 (10th Cir. 2016)). Health Connections asserts that HHS knew about the flaws in its risk adjustment formula shortly after the program began, but did not change the formula. See Plaintiff's Reply at 9-10. Health Connections thus avers that, when an agency ignores new data without adequate explanation, which it believes HHS did, such conduct is arbitrary and capricious. See Plaintiff's Reply at 8-9 (citing Magnets, LLC v. Consumer Prod. Safety Comm'n, 841 F.3d at 1149).

         Health Connections next re-asserts its argument that HHS' use of the state average premium in its risk adjustment formula violates the ACA. See Plaintiff's Reply at 12. Health Connections argues that, because the ACA provides that the risk adjustment program should assess a charge on insurers based on actuarial risk, see Plaintiff's Reply at 12 (citing 42 U.S.C. § 18063(a)(1)-(2)), and HHS assesses a charge based on “multiplying relative actuarial risk against the statewide weighted average premium, ” HHS violates the ACA. See Plaintiff's Reply at 12. Health Connections adds that nothing in the ACA's text indicates charges and payments should be based on any factor other than actuarial risk. See Plaintiff's Reply at 13 (citing 42 U.S.C. § 18063(a)(1)-(2)).

         Health Connections then re-asserts that HHS' use of state average premiums is arbitrary and capricious. See Plaintiff's Reply at 15. Specifically, HHS contends that the one factor which Congress directed HHS to consider in developing a risk adjustment program was actuarial risk, but HHS' use of state average premiums considers other factors unrelated to actuarial risk, such as “how effectively a plan negotiates prices with hospitals and physicians, how well it manages its members' medical care, and how ably it controls administrative expenses.” Plaintiff's Reply at 16. Health Connections adds that, contrary to HHS' assertion, premiums are not a proxy for actuarial risk. See Plaintiff's Reply at 18 (citing Defendant Mem. at 16-21).

         Health Connections then responds to HHS's contention that the use of state average premiums “‘reduce[s] incentives for plans to avoid high risk enrollees.'” Plaintiff's Reply at 19 (quoting Defendant Mem. at 21). To this contention, Health Connections rejoins that the ACA has separate statutory provisions “forbidding carriers from denying coverage or raising premiums for sicker enrollees, ” Plaintiff's Reply at 19 (citing 42 U.S.C. § 300gg-3), and that “nothing in the text of the ACA . . . suggests that Congress intended risk adjustment to somehow be the enforcement mechanism for these provisions.” Plaintiff's Reply at 19. Health Connections then largely repeats its arguments that HHS' justifications for state average premiums, i.e., budget neutrality and predictability, are flawed. See Plaintiff's Reply at 20-21.

         Next, Health Connections avers that “HHS fails to account for the actual health care costs of healthier enrollees.” Plaintiff's Reply at 21. Health Connections asserts that HHS “nowhere addresses the evidence that the formula just flat out does not work in predicting the costs of medical care.” Plaintiff's Reply at 22. Health Connections adds that HHS failed to respond to a comment from Health Connections about this problem and that, when an agency receives “‘critical commentary, '” it must “‘respond in a reasoned manner'” to that comment. Plaintiff Reply. at 23-24 (quoting FMBE Bank Ltd. v. Lew, 209 F.Supp.3d 299, 333 (D.D.C. 2016)).

         Health Connections then re-alleges that HHS “violates Congressional Intent to have a robust market in bronze plans.” Plaintiff's Reply at 24. Health Connections repeats that Congress intended for bronze plans to be available in the ACA exchanges, but that HHS' risk adjustment formula makes it difficult for bronze plans to be profitable. See Plaintiff's Reply at 24. Health Connections adds that HHS did not respond to Health Connections' comments on this point during the 2018 rulemaking period. See Plaintiff's Reply at 24.

         Health Connections then re-asserts its arguments that HHS wrongfully excluded prescription drug data from its risk adjustment formula before 2018, see Plaintiff's Reply at 25-27, and that HHS' formula does not account for partial year enrollees, see Plaintiff's Reply at 27-28, before addressing a new point -- HHS' jurisdictional argument, see Plaintiff's Reply at 28. Health Connections asserts that “HHS contends that NMHC seeks only money damages for past risk adjustment calculations and thus this action belongs in the Court of Federal Claims.” Plaintiff's Reply at 28. Health Connections rejoins that this argument is meritless, because “the Prayer for Relief in NMHC's Amended Complaint requests only declaratory and injunctive relief . . . [and] asserts only one count under the APA, which only permits declaratory and injunctive relief.” Plaintiff's Reply at 28 (alteration added)(citing Complaint at 56; 5 U.S.C. §§ 702, 706). Health Connections also emphasizes that it seeks only equitable relief, and not damages, for its claims relating to the years 2014-2016. See Plaintiff's Reply at 24. Specifically, Health Connections asserts that it does not ask the Court to refund any charges for those years, but rather, to invalidate regulations used during those years so that HHS can then fix its regulatory scheme. See Plaintiff's Reply at 29. Health Connections then avers that, if under HHS' fixed scheme, HHS owes back money to Health Connections, either HHS can pay Health ...


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