The Centers for Medicare and Medicaid Services said it had to put the payments on hold, after a USA district court judge ruled the government arrived at the formula that guides the payouts in a flawed way. The payments also were meant to try to prevent insurers from cherry-picking healthier patients to keep costs down.
The announcement came as insurers were awaiting an annual report that usually comes at the end of June, informing them of whether they owe money into the risk adjustment program or will be paid out for the previous year.
New Mexico Health Connections and Minuteman Health of MA, two small nonprofit insurers, filed lawsuits in 2016, contending that the Obama administration created an inaccurate formula that unfairly rewarded large insurers.
"Costs for taxpayers will rise as the federal government spends more on premium subsidies", the group said.
Risk-adjustment payments are one way the Affordable Care Act - Obamacare's formal name - stabilizes health insurance prices.
About 20 million Americans have received health insurance coverage through the program.
President Barack Obama's signature law, the Affordable Care Act was signed into law in March 2010.
Risk adjustment is a key aspect of market stabilization under the ACA, also known as Obamacare. But U.S. District Judge James Browning of New Mexico ruled in February that HHS couldn't use statewide average premiums to come up with its risk-adjustment formula because the agency wrongly assumed the ACA required the program to be budget-neutral. The CMS has appealed the decision, particularly because a MA court upheld such payments.
"We were disappointed by the court's recent ruling", said CMS Administrator Seema Verma.
The main insurance trade associations in Washington have been organizing calls with their member companies and trying to coordinate a response. The Maryland Insurance Administration has a hearing scheduled for July 31.
The Trump administration's move "will significantly increase 2019 premiums for millions of individuals and small business owners and could result in far fewer health plan choices", association president Scott Serota said in a statement.
Trump tweeted dozens and dozens of times about Obamacare and its demise past year as he pushed the Senate to repeal the law. Legacy insurers that have a wealth of patient data may have a leg up on coding.
It could encourage more insurers to bow out of the Affordable Care Act.
Insurance Commissioner Al Redmer Jr. said that as of now he doesn't expect the latest decision to interrupt the state's rate-setting process.
Trump and his team have continued to argue that the individual mandate is unconstitutional and has promised to refuse to defend any parts of Obamacare in court.