A federal government decision to freeze "risk adjustment" payments under the federal Affordable Care Act is threatening more than $70 million in funding expected by Minnesota health insurers while also raising questions about the potential impact on premiums next year.

On Saturday, the federal Centers for Medicare and Medicaid Services (CMS) said a court decision earlier this year means it must put on hold the financial transfers, which effectively shift money from some insurers in certain markets to carriers that cover more people with expensive health conditions.

Health policy experts argue the federal agency could have responded to the ruling without freezing the transfers. Insurers, in turn, criticized the move, saying it could result in higher rates for consumers.

"It's ridiculous," said Jim Schowalter, chief executive of the Minnesota Council of Health Plans, a trade group for insurers. "The timing, the impact, the uncertainty continue to make health care harder and more expensive for people than it needs to be."

Risk adjustment is one of three provisions in the Affordable Care Act (ACA) that were designed to promote competition in the insurance markets for individuals and small businesses — two relatively small markets that underwent significant changes with the health law.

In Minnesota, about 150,000 people this year are buying coverage in the individual market, which primarily serves people under age 65 who are self-employed or don't get coverage from an employer. About 310,000 state residents are covered by small employer health plans, which cover 50 people or less.

Risk adjustment has been used for years by the federal government in making payments to private insurers that operate Medicare health plans. The idea is that payments from carriers with relatively healthy enrollees are directed by the government to insurers that happen to attract enrollees who use more medical care.

In a statement Saturday, CMS cited a February decision by the U.S. District Court for New Mexico that invalidated the use of the statewide average premium in the risk adjustment transfer formula established under the ACA, pending further explanation of why the government has been running the program in a budget neutral manner.

"The ruling prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved," CMS said in the statement.

CMS said that because of a contrary decision on the issue by the U.S. District Court for Massachusetts, the government moved the New Mexico district court to reconsider its decision. The agency said "the calculated risk adjustment transfer amounts for the 2017 benefit year are $10.4 billion, which includes transfers across catastrophic, small group, and individual non-catastrophic risk pools."

"As a result of this litigation, billions of dollars in risk adjustment payments and collections are now on hold," CMS Administrator Seema Verma said in a statement. "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."

David Feinwachs, a former hospital lobbyist in Minnesota and frequent critic of HMOs, applauded the Trump administration's move. Risk adjustment programs in Medicare have spawned litigation over allegations of fraud, said Feinwachs, who argues that health insurers haven't been transparent in providing information to substantiate their need for the payments.

But Nicholas Bagley, a law professor at the University of Michigan, argued in a blog post Monday that risk adjustment "isn't remotely controversial" and could continue under the ACA had the federal government simply chosen a different response following the New Mexico court's ruling. Sabrina Corlette, a health policy researcher at Georgetown University, seconded the point, writing in an e-mail to the Star Tribune that the government opted for "throwing a monkey wrench into a critical program whose primary goal is to protect people with pre-existing conditions from discrimination by insurers."

Even Robert Laszewski, a frequent critic of the ACA and president of Health Policy and Strategy Associates in Virginia, said he found the administration's action befuddling.

"If you're a company that has to pay in, do you have to pay in? How much do you have to pay in?" Laszewski asked. "If you're a company that's getting paid out, you've fronted that money expecting it — you've got a real problem if they don't pay the money."

The financial impact for insurance companies varies.

For 2017, Eagan-based Blue Cross and Blue Shield of Minnesota is due about $44.2 million in risk adjustment payments, according to a Star Tribune analysis of federal data. Minneapolis-based UCare is due $17.2 million, according to the analysis, while Minnetonka-based Medica would receive nearly $10.3 million.

Bloomington-based HealthPartners, however, was expecting to pay $65.8 million.

Schowalter of the Minnesota Council of Health Plans said the CMS decision threatens to both raise premiums for 2019 coverage and potentially change the options consumers will see in the individual and small group markets. Minnesota carriers in both markets already have filed rate proposals for 2019, so it's yet to be seen, Schowalter said, how state regulators reviewing those requests will incorporate the CMS announcement.

Larry Levitt of the Kaiser Family Foundation said he wasn't sure if the CMS decision would necessarily lead to higher premiums, since carriers aren't supposed to recover past losses in future rates. Levitt said a key deficiency in the risk adjustment program cited by the New Mexico judge has already been addressed for 2019.

Even so, Levitt said: "The administration has introduced quite a bit of uncertainty into this process."

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck