"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 the agency's statement.
The CMS said a February federal court decision in New Mexico, which ruled it was using a flawed formula to determine its collections and payments amounts, prevented it from continuing the program.
CMS plans to appeal the court's ruling, as the U.S. District Court for the District of MA ruled to uphold the payments. "It will undermine Americans' access to affordable care, particularly for those who need medical care the most".
"We urge the Trump administration to back off of this risky and destabilizing plan, and instead begin working on bipartisan solutions to make coverage more affordable", said Brad Woodhouse, the executive director of Protect Our Care, a progressive group that supports Obamacare.
"The risk adjustment formula was extremely biased in favor of large, established insurers and discriminated against new and small insurers, including co-ops like ours", Hickey told The New York Times on July 7. Citing conflicting federal court decisions on the program, the CMS said it can not collect or disburse funds under the risk-adjustment program.
In what now seems a rather prophetic statement, a senior vice president of the Kaiser Family Foundation cited the government involvement as the major factor in keeping the market from stabilizing. He says halting the risk adjustment program will disrupt the individual markets, and might even cause insurers not to participate next year.
It could encourage more insurers to bow out of the Affordable Care Act. Last month the Department of Justice decided not to defend the law in a court challenge in Texas, jeopardizing the part of the law that protects people with pre-existing conditions from being denied coverage, as NPR reported.
CMS cites the late February court ruling in deciding to place a freeze on the $10.4 billion which it collected a year ago, and which ordinarily would be dispersed among high-risk insurers.
"They can't just say, 'Well, we're new, we don't like what the previous guys did, so we're going to do something different, '" Whitlock says. These alternative plans don't have to provide all of the Affordable Care Act's consumer protections. However, under Obamacare, insurance companies can not charge higher premiums, or even deny coverage, to clients with pre-existing conditions.
Martin Hickey, the founder of New Mexico Health Connections, the state's health care co-op and the company that filed the lawsuit, believes the court ruling will reduce the prices and benefit consumers.