ACA risk pro­grams level the play­ing field for in­sur­ers

Modern Healthcare - - NEWS - By Shelby Liv­ingston

Two of the Af­ford­able Care Act’s pro­grams meant to com­pen­sate health in­sur­ers that re­ceive higher than av­er­age claims are work­ing just as they should, ac­cord­ing to a new study.

Of the in­sur­ers that sold plans on the in­di­vid­ual mar­ket in 2014 and 2015, those that re­ceived the high­est-cost claims also got the big­gest pay­outs from the health­care law’s risk-ad­just­ment and rein­sur­ance pro­grams, a study pub­lished last week in the jour­nal Health Af­fairs showed.

In the in­di­vid­ual mar­ket, some plans get lucky and en­roll health­ier-than-av­er­age mem­bers, while oth­ers tend to at­tract sicker, costlier ones. The study showed that risk ad­just­ment and rein­sur­ance “help level the play­ing field so in­sur­ers can focus on other as­pects of their busi­ness not re­lated to risk selection,” said Paul Ja­cobs, the study’s lead au­thor and a ser­vice fel­low at HHS’ Agency for Health­care Re­search and Qual­ity.

Un­der the ACA, health in­sur­ers can no longer charge plan mem­bers a higher price for be­ing sick. The law also pro­hibits in­sur­ers from deny­ing cov­er­age to some­one with a pre-ex­ist­ing con­di­tion. That means in­sur­ers are re­quired to sell sick peo­ple health poli­cies that will leave in­sur­ers on the hook for big health bills be­yond a pol­i­cy­holder’s de­ductible. That’s a big in­cen­tive for an in­surer to avoid en­rolling those sick mem­bers.

To re­duce that in­cen­tive and keep pre­mi­ums down, the ACA cre­ated pre­mium- sta­bi­liza­tion pro­grams: risk ad­just­ment and rein­sur­ance. The per­ma­nent risk-ad­just­ment pro­gram is meant to dis­cour­age in­sur­ers from cher­ryp­ick­ing healthy plan mem­bers over sicker, riskier ones in the in­di­vid­ual and small-group in­sur­ance mar­kets. It works by col­lect­ing pay­ments from plans with health­ier-than-av­er­age mem­bers and dis­tribut­ing that money to plans sad­dled with high-cost mem­bers. The pro­gram is based on a pa­tient’s risk score, sim­i­lar to what’s used in Medi­care Ad­van­tage, ex­cept risk ad­just­ment is a zero-sum game un­der the ACA.

The three-year rein­sur­ance pro­gram, which ended in 2016, pro­tects in­sur­ers from costly claims. In­sur­ers pay into the rein­sur­ance pool, and those funds are then paid to health plans that had mem­bers with ex­tremely high med­i­cal claims. The fed­eral gov­ern­ment made $7.8 bil­lion in rein­sur­ance pay­ments to in­sur­ers for 2015.

The study did not an­a­lyze the third risk pro­gram, called risk cor­ri­dors, which has been po­lit­i­cally fraught and la­beled a “bailout” by GOP law­mak­ers.

Small, re­gional health in­sur­ers have com­plained that the risk-ad­just­ment pro­gram un­fairly fa­vors big­ger pay­ers with more claims ex­pe­ri­ence. Some health co-ops es­tab­lished un­der the ACA have sued the fed­eral gov­ern­ment claim­ing the Obama ad­min­is­tra­tion mis­man­aged the pro­gram by us­ing a flawed for­mula.

But the study shows the pro­grams have worked fine for most in­sur­ers. Most of the rev­enue trans­ferred through the risk-ad­just­ment pro­gram went from in­sur­ers with lower paid claims to in­sur­ers with higher paid claims, ac­cord­ing to the study.

In the rein­sur­ance pro­gram, in­sur­ers that had higher paid claims re­ceived higher rein­sur­ance rev­enue than in­sur­ers with lower paid claims. The 25% of in­sur­ers that had the high­est claims re­ceived more than two times what in­sur­ers with the low­est claims re­ceived in rein­sur­ance rev­enue.

To­gether, the two pro­grams boosted most in­sur­ers’ rev­enue rel­a­tive to their claims.

In­sur­ance claims in 2014 and 2015 ex­ceeded pre­mium rev­enue by $90 to $397 per en­rollee per month for the 30% of in­sur­ers with the high­est claims. But af­ter fac­tor­ing in rev­enue from the risk-ad­just­ment and rein­sur­ance pro­grams, the ef­fect was re­versed and pre­mium rev­enue ex­ceeded in­sur­ance claims by $0 to $49, ac­cord­ing to the study.

Re­searchers also found that smaller in­sur­ers ben­e­fited most from both the risk-ad­just­ment and rein­sur­ance pro­grams.

“Th­ese pro­grams are work­ing well to com­pen­sate in­sur­ers for the health sta­tus of those they in­sure,” said Erin Trish, health pol­icy pro­fes­sor at the Univer­sity of South­ern Cal­i­for­nia who was not part of the study. “In any sit­u­a­tion where you’re go­ing to not al­low in­sur­ers to fully ad­just their pre­mi­ums to re­flect the health sta­tus of who they’re cov­er­ing, you need to have risk ad­just­ment in place to ad­e­quately com­pen­sate in­sur­ers.”

The CMS has fi­nal­ized sev­eral changes to the risk-ad­just­ment pro­gram. Start­ing in 2018, the pro­gram for ex­change plans will now fac­tor in the ef­fects of peo­ple who are en­rolled for only part of the year. Pre­scrip­tion drug data will also be fac­tored into the pro­gram’s com­plex for­mula.

In the in­di­vid­ual mar­ket, some plans get lucky and en­roll health­ier-thanaver­age mem­bers, while oth­ers tend to at­tract sicker, costlier ones.

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