Small insurers take big hits under ACA’s risk-adjustment program
Small health insurers and the few remaining co-op plans were again socked with large charges under the Affordable Care Act’s risk-adjustment program.
The CMS in late June released data for the third year of the ACA’s controversial risk-adjustment program, which shuffles money from plans with healthier enrollees to those with sicker ones. The agency also released the 2016 payments under the temporary reinsurance program, which protects health insurers against costly claims.
For ACA plans sold last year, 445 insurers split a total of $4 billion in reinsurance payments.
The permanent risk-adjustment program is meant to keep ACA insurers from cherry-picking healthier plan members over sicker, costlier ones. It collects payments from plans with healthier than average members and distributes that money to plans saddled with high-cost members. The zero-sum program is based on patients’ risk scores, which factor in demographic information and health conditions. The CMS said 709 insurers participated in the risk-adjustment program.
The formula used to calculate payments in the risk-adjustment program has been criticized for unfairly favoring larger plans with more claims experience. Smaller companies that sell on the ACA’s exchanges have said they don’t have as much claims data, and therefore their membership base looks healthier than it is. Several, including Evergreen Health co-op in Maryland, New Mexico Health Connections and Minuteman Health of Massachusetts filed suits last year to halt the program.
Nevertheless, for 2016 the CMS said Evergreen must pay $9.4 million in risk-adjustment payments, though it will receive $2.5 million from the reinsurance program. Minuteman will have to pay $25.4 million in risk-adjustment payments, and New Mexico Health Connections will pay $8.9 million.
Several large health plans also lost big money under the programs. Kaiser Foundation Health Plan must pay $437.8 million in risk-adjustment payments for its ACA individual and smallgroup plans in California. It’s set to receive $99.5 million in reinsurance payments.
The biggest winners were Blue Cross and Blue Shield-affiliated plans. Under the ACA, sicker patients flocked to the Blues’ wellknown brand, hence the companies’ higher risk-adjustment payments.
Blue Cross and Blue Shield of Florida will rake in $615.7 million in risk-adjustment and reinsurance payments combined—the largest amount among participating insurers. Blue Shield of California will receive $572 million.
Responding to insurers’ demands, the CMS changed the risk-adjustment formula for 2017, including accounting for people who enroll for only a portion of the year because of major life changes. In 2018, the formula will factor in prescription drug data for the costs of covering enrollees.
Still, the CMS said the risk-adjustment and reinsurance programs are working as they’re supposed to. Insurers with high paid claims were more likely to receive risk-adjustment payments, while those with relatively low paid claims were more likely to pay in. The CMS noted that insurers in the lowest quartile of claims costs on average were assessed a risk-adjustment charge of 18% of total collected premiums, while those in the highest quartile of claims costs received a risk-adjustment payment of about 27% of their total premiums. Insurers with higher claims costs also received larger reinsurance payments.
The biggest winners were Blue Cross and Blue Shieldaffiliated plans. Under the ACA, sicker patients flocked to the Blues’ wellknown brand, hence the companies’ higher riskadjustment payments.