CONCORD, N.H. >> A nonprofit health insurer with 25,000 customers in Massachusetts and New Hampshire has filed a federal lawsuit claiming it is being illegally punished for offering lower-cost products.

Under the Affordable Care Act's risk adjustment program, insurers with healthier customers make payments to insurers with sicker customers. Boston-based Minuteman Health, a nonprofit insurance co-op, recently was ordered to pay $16.7 million, but it objects to how payments are calculated.

In a lawsuit filed Friday, it argues that instead of assessing only a consumer's relative health status or actuarial risk, the program calculates payments based on unrelated factors such as how an insurer's premiums compare to statewide averages. Minuteman says its premiums are substantially lower than average not because its customers are healthier but because its business model focuses on keeping costs low and because its members are more likely to purchase less-expensive plans.

"Perhaps the most troubling aspect of the Risk Adjustment program is that it isn't putting insurers on a 'level playing field' as intended," the lawsuit states. "Instead, CMS is picking winners and losers."

A spokeswoman for CMS said the agency does not comment on pending legislation.


Minuteman, which filed suit in federal court Boston, isn't alone in suing the Department of Health and Human Services and Centers for Medicaid and Medicare Services over the risk adjustment program. In June, Maryland's Evergreen Health Cooperative filed a similar lawsuit asking that the payments be phased in or delayed. And at least five insurers have filed lawsuits over risk corridor payments, a different, temporary provision of the health care law meant to help unprofitable insurers.

The co-ops, funded by low-interest federal loans, were established under the Affordable Care Act to increase competition. But a dozen of them have closed, and many of the survivors lost well over $20 million last year, according to statements compiled by the National Association of Insurance Commissioners.

Though it lost $42.7 million last year, Minuteman CEO Tom Policelli said the co-op can afford to make the risk payments. But that's not the point, he said.

"We cannot continue to allow CMS to take our members' money illegally and give it to more expensive insurance companies," he said. "CMS has essentially created a reverse Robin Hood program, which harms consumers, small companies and taxpayers."