The new federal health law risk management programs could scramble old carrier strategies for managing risk.
Jason Petroske and Jason Siegel, actuaries at Milliman, write in a new commentary that the Patient Protection and Affordable Care Act "3Rs" programs could make older patients and those with chronic health problems, such as heart disease and cancer, the most profitable people to insure in the individual and small-group markets.
If individual and small-group plans as a whole end up insuring far more sicker, older patients than they expected, that could swamp the whole market, the Milliman actuaries warn.
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But, for every carrier in the market, attracting as many sicker, older patients as possible could bring in extra risk program payments during the year.
The actuaries looked at specific conditions and found that patients with seven conditions could generate a pretax profit margin of 1,000 percent, and those with 86 other conditions could produce profit margins of 20 percent to 1,000 percent.
People with 28 conditions could produce profit margins of 0 percent to 20 percent, and people with 5 conditions seem likely to be unprofitable.
PPACA created the 3Rs programs — a temporary transitional reinsurance program, a temporary risk corridor program and a permanent risk adjustment program — to help protect health carriers against too much risk due to new underwriting restrictions.
The temporary programs are supposed to protect carriers against patients with big claims costs after the year is already over. The risk adjustment program is supposed to pay carriers for taking on extra risk while the year is already under way, by using risk scores to determine how much money the program pays insurers.
PPACA will let carriers make some use of age when they're setting prices, but it forbids them from using other personal health factors when selling or pricing coverage.
If the "fixer upper" patients generate big claims during the year, the reinsurance program might ease the sting with a big reinsurance payment. But if they stay reasonably healthy and keep claims low, that could make them much more profitable than "young invincibles," the actuaries write.
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
