5 reasons the ACA risk-adjustment storm might blow over

The Centers for Medicare and Medicaid Services (CMS) says it will stop making payments to insurers under the Affordable Care Act risk-adjustment program while it resolves legal problems.

CMS Administrator Seema Verma announced the payment suspension Saturday, as insurers were racing to complete individual and small-group rate filings for 2019 coverage. The individual major medical open enrollment period for 2019 coverage is supposed to start Nov. 1.

America’s Health Insurance Plans, a big health insurer trade group, blasted news of the sudden ACA risk-adjustment program freeze.

Related: ACA risk programs are working for insurers

“We are very discouraged by the new market disruption brought about by the decision to freeze risk-adjustment payments,” AHIP said in a statement. “This decision will have serious consequences for millions of consumers who get their coverage through small businesses or buy coverage on their own. It will create more market uncertainty and increase premiums for many health plans — putting a heavier burden on small businesses and consumers, and reducing coverage options.”

But the health insurers, consumers and agents still in the individual major medical market have faced a series of what looked like market-killing threats since key ACA individual market rules and programs came to life in January 2014. For now, the market is still here.

This year, for example, in spite of all of the many challenges facing agents and brokers in the individual major medical market, agents and brokers helped 3.7 million sign up for 2018 exchange plan coverage. The number of exchange plan users helped by agents and brokers was down just 1 percent from the 2017 total.

There are some early signs that, at least in some states, the market could do better in 2019. In some states, insurers have asked for average individual major medical rate increases under 10 percent. Agents and brokers might get more opportunities than they expect to earn commissions, or enrollment fees, by helping people sign up for exchange plan coverage.

Full-blown chaos in the individual major medical market could create interesting opportunities for produces to sell memberships in health care cost sharing ministries, short-term medical insurance, association health plan coverage, hospital indemnity insurance and other alternatives to individual major medical insurance.

A temporary squall that blows over could cause the worst scenario for producers: A situation in which consumers put off making decisions about purchases and may, in the end, go through 2019 without any protection against medical bills whatsoever.

If the current risk-adjustment program freeze lasts, it could affect about $10.4 billion in payments owed for 2017, or about 10 percent of insurers’ 2017 individual major medical premium revenue.

Here are five things for the agents and brokers who are still the individual major medical market, or who would like to get back in, to know about the latest threat that could wreck everything.

1. The ACA risk-adjustment program freeze is just another chapter in the ACA “three R’s” problems story.

The drafters of the ACA hated medical underwriting. They wanted people with obesity or diabetes to be able to get the same coverage for the same price that everyone else paid.

The drafters eliminated many of the weapons insurers once used to hold down claim risk, such as the ability to reject people who needed organ transplants.

The drafters tried to help health insurers cope by adding the ACA premium subsidies, by using the individual health coverage mandate to push healthy people to pay for coverage, and by setting up three new risk management programs:

i. A temporary reinsurance program. This program used fee revenue from all health coverage providers to help insurers pay the bills of individual major medical insurance users with catastrophic claims. This program, which generated enough revenue to pay its obligations, ended in 2016.

ii. A temporary risk corridors program. This program was supposed to ease health insurers’ worries about participating in the ACA publication exchange system, by using cash from thriving issuers to help struggling exchange plan issuers. This program flopped miserably: It raised only enough cash from thriving issuers to pay about 15 percent of the first-year claims. Insurers are suing to try to get the federal government to pay the rest of the program obligations. The risk corridors program ended in 2016.

iii. The ACA risk-adjustment program. This is a permanent program. It uses a “risk scoring ” system to assign everyone with individual or small-group major medical coverage a risk score. Plans that end up with enrollees with a low average risk score are supposed to pay cash to compensate the plans that end up with higher-risk enrollees.

Most big health insurers have been skeptical about the performance of all of the three R’s programs since October 2015, when news of the flop of the ACA risk corridors program surfaced. It’s not clear how optimistic any health insurers have really been about their ability to get any ACA risk management programs to pay up.

The less confidence the remaining players had in any ACA program to run smoothly, the less impact the risk-adjustment freeze will have.

2. CMS says it’s making a serious effort to try to keep the ACA risk-adjustment program going.

President Donald Trump has talked about wanting to repeal and replace Obamacare, but his administration seems to be supporting some parts of the ACA, and it’s possible that it may really want to get the risk-adjustment program back on track.

The Trump administration has let the courts block the ACA risk corridors programs.

The administration has also let the courts block the ACA cost-sharing reduction subsidy program — a program that helps low-income ACA exchange plan users pay their deductibles and coinsurance bills.

But the Trump administration has taken a mixed approach to a Republican state official effort to kill the entire Affordable Care Act. The plaintiffs told a federal judge in Texas that the ACA individual mandate is unconstitutional. Because the mandate is unconstitutional, the entire ACA should be thrown out, the plaintiffs say.

The Trump administration has asked the court to let the ACA individual mandate and the ACA medical underwriting restrictions die, but to let the rest of the ACA, including the ACA premium tax credit subsidy program rules and the ACA risk-adjustment system rules, stay intact.

Verma said Saturday, in her announcement of the risk-adjustment program freeze, that CMS wants to find a way to continue to make ACA risk-adjustment program payments.

A U.S. District Court judge in New Mexico ruled in February that the CMS approach to administering the risk-adjustment program from 2014 through 2018 was invalid, but a U.S. District Court judge in Massachusetts has ruled in favor of the CMS approach, Verma said.

CMS has already asked the court in New Mexico to reconsider its decision, Verma said.

CMS “hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets,” Verma said.

If Verma is being sincere, and the Trump administration would rather not see the ACA public exchange system break down right before voters head to the polls on Nov. 6, that could increase the odds that the ACA risk-adjustment program will get better soon.

3. Many health insurers actually hate the ACA risk-adjustment program.

Many health insurance company executives that support the goals of the ACA say that, in practice, the ACA risk-adjustment program stinks.

Executives at small, new health insurers say the program is especially hard on small, new insurers that have little information about the health of their enrollees.

Some executives have also argued that, because of the way CMS builds premiums into the risk-adjustment formula, the formula is hard on insurers with low premiums.

Many of the insurers with large ACA risk-adjustment program receivables seem to be large, nonprofit health plans that are staying the individual major medical market as a public service. The insurers with big risk-adjustment payables tend to be for-profit carriers that have a choice about where to sell coverage.

In theory, a temporary risk-adjustment program freeze could do more to keep the smaller and national players that hate the program in the exchange system than to push the big, nonprofit players out.

4. Many of the remaining issuers might be able to work out their own risk-adjustment arrangements.

In many counties, the two remaining carriers are a local or state nonprofit health plan that serves self-employed people, and a national, for-profit Medicaid plan manager that serves people who often shift between qualifying and not qualifying for Medicaid coverage.

If antitrust regulators look the other way, the local administrators of those two plans might be able to negotiate a risk-adjustment deal on their own.

5. Many issuers may have no real need for risk-adjustment, because they already have what amount to monopolies in the market sectors they serve. 

In many counties, the local or state nonprofit issuer may serve most of the self-employed people in the area, and most of the other people getting little or no ACA subsidy help.

The Medicaid plan manager may serve all of the low-income people who buy coverage.

If an issuer understands the nature of its target market, and it serves most of the people in that target market who buy coverage, it might not have to worry about risk-adjustment: The issuer might know that it’s handling all of the insured health risk in its target market.

In that scenario, problems with the risk-adjustment program might be a minor nuisance; the real risk management challenge might be competition from companies offering medically underwritten alternatives to major medical insurance, such as health care cost sharing ministry memberships, hospital indemnity insurance and short-term medical insurance.