CMS: Quota Share Reinsurance "Not Permissible" For Medicare Advantage Plans

In an abrupt change in position, the US Centers for Medicare & Medicaid Services ("CMS"), in its Advance Notice of Methodological Changes for Calendar Year (CY) 2018, the "Call Letter", published February 1, 2017,  announced, for the first time, that quota share ("QS")reinsurance arrangements for Medicare Advantage ("MA") plans are "not permissible."

Currently, almost all MA organizations (MAOs)—large and small—use QS reinsurance to spread risk and/or achieve surplus relief. In particular, QS reinsurance has been critical for small and mid-market MAOs to compete with larger and better-capitalized MAOs. Reinsurance is prevalent even though federal law requires MAOs to "assume full financial risk ... for the provision of [] health care services." 42 U.S.C. §1395w-25(b). Most practitioners believe this requirement did not prevent MAOs from reinsuring their risk due to the very nature of reinsurance. Under a two-party Medicare Advantage Plan (i.e., between the MAO and