Why some issuers hate the ACA risk-adjustment program

Officials at the Centers for Medicare and Medicaid Services have started a new round of insurer-on-insurer wrestling, by posting preliminary Affordable Care Act risk-adjustment program figures for 2017.

The program is supposed to use cash from the health insurers that end up with healthier-than-average individual and small-group enrollees to compensate the insurers that end up with sicker-than-average enrollees. The program could shift about $3.8 billion of the $75 billion in 2017 individual major medical premium revenue that’s part of the program from one carrier to another, as well as $1.3 billion of the $52 billion in small-group revenue that’s part of the program.

Related: 5 reasons the ACA risk-adjustment storm might blow over

Analysis of the CMS report shows that Anthem Inc., Health Care Service Corp. and other Blue Cross and Blue Shield plan operators could, in theory, get about $2.3 billion in individual major medical risk-adjustment payments for 2017.

Three other national individual market players — Centene Corp., Kaiser Permanente and Molina Healthcare Inc. — could end up having to pay $2 billion into the program.

A copy of the main report is available here.

A spreadsheet appendix that shows how much each issuer might get from the program, or might have to pay in, is available here. (CMS indicates when an issuer will have to pay into the risk-adjustment program by putting the payable figure in parentheses.)

Doubts

It’s not clear how CMS will end up using the 2017 ACA risk-adjustment program report.

CMS officials said Saturday that they are freezing 2017 ACA risk-adjustment program payments.

Officials blamed the freeze on a ruling by a federal court in New Mexico. The court is moving toward blocking CMS use of the rules CMS used to run the program from 2014 through 2018. CMS officials said they are trying to get the New Mexico court to let them get the risk-adjustment program back in action.

If the courts let CMS get back to running the ACA risk-adjustment program about the same way they ran it for 2014 through 2016, insurers will soon start to fight over the preliminary figures.

Insurers will try to persuade CMS that they should get more cash from the program and pay less money into the program.

ACA risk-adjustment program basics

Since January 2014, health insurers have had to issue individual and small-group major medical coverage without considering personal health factors other than an applicant’s location.

Insurers have had to price new individual and small-group coverage without considering any personal health factors other than location, age and tobacco use.

The ACA risk-adjustment program is supposed to give issuers a little protection against the elimination of their old defenses against claim risk. Program managers try to compensate the insurers that end up with more than their fair share of the enrollees with serious health problems, such as diabetes, cancer and HIV.

The ACA risk-adjustment program is similar to older risk-adjustment programs that CMS has used to even out risk for the issuers in the Medicare Advantage and Medicare Part D prescription drug plan markets.

ACA risk-adjustment program managers assign each enrollee a health risk score. The managers then use a formula to estimate how much health risk each individual and small-group major medical issuer in a market has assumed.

Issuers with low average enrollee risk scores are supposed to pay cash into the program.

Issuers with high average risk scores are supposed to get cash out.

The program does not affect “grandfathered coverage,” or coverage sold before all of the current ACA underwriting and benefits rules took effect.

Program administrators have sketched out the risk-scoring rules through public documents, but they have completed the work with private meetings with the affected insurers. The affected insurers have said little about what goes on at the risk-adjustment program participant meetings.

Insurers have raised a number of concerns about the program, including:

• Worries about what happens when issuers fail, or simply refuse to pay their risk-adjustment program bills.
• Whether the risk scores adequately reflect the relative risk of enrollees.
• Whether the issuer-level scoring approach is fair to new and rapidly growing plans, which may have little information about enrollees’ health.
• Whether the issuer-level scoring formula is fair to plans with low average premiums.

Other report highlights

CMS uses major medical insurance market summary figures to calculate the ACA risk-adjustment program payables and receivables.

That makes the June risk-adjustment reports a good summary of how CMS officials think the individual and small-group major medical markets performed.

The June reports include only the individual and small-group coverage subject to all ACA rules, not to “grandfathered” policies written under the old rules.

According to the new ACA risk-adjustment program report:

• The average monthly premium for all non-grandfathered, non-catastrophic individual major medical coverage increased 20 percent, to $472.
• The number of issuers in the ACA risk-adjustment program fell 7.8 percent, to 654.
• The number of issuers of non-grandfathered, non-catastrophic individual major medical coverage fell 20 percent, to 373.
• The number of issuers of non-grandfathered small-group major medical coverage fell 6.7 percent, to 515.
• About 21 percent of enrollees in the 2017 non-grandfathered, non-catastrophic individual major medical risk pool had at least one worrisome health condition included in the risk-scoring process, and 3.2 percent had three or more worrisome health conditions.