Although the future of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) remains uncertain, a recent study, published in the March issue of Health Affairs, sought to inform the discussion of how risk-sharing programs brought pursuant to the ACA can address risk selection. Specifically the study compared revenues versus claims costs for insurers in the individual market during 2014 and 2015, the first years of ACA implementation. The study, "Risk Adjustment, Reinsurance Improved Financial Outcomes For Individual Market Insurers With The Highest Claims," found the risk adjustment, as well as the reinsurance program, to be "relatively well targeted."
Risk adjustment. The ACA, while prohibiting insurers from denying coverage for an applicable due to his or her health status (ACA sec. 1101) to allow sick people to obtain the same coverage and same premiums as healthy people, also provided for the risk adjustment program per ACA sec. 1343 to equalize cost differences across plans. Under the program, the costs associated with enrolling a health person compared to those of enrolling a sick person are made relatively equal, causing plan premiums to reflect the average health status of an entire population enrolled in a risk pool, rather than just a specific plan’s enrollees. Put simply, the program requires plans with healthier enrollees to contribute funds while plans with sicker enrollees receive funds. This is a plan used in other health insurance markets prior to the ACA, including the Medicare prescription drug program.
Two other related programs, reinsurance and risk corridors, were also created by the ACA to further stabilize premiums. Reinsurance, per ACA sec. 1341, reimburses a portion of a plan’s spending for high-cost enrollees. The risk corridors program, established under ACA sec. 1342, was beyond the scope of the study.
Results from 2014 and 2015. The study looked at ACA-compliance individual market plans to assess the risk adjustment and reinsurance programs for the first two years of ACA implementation. It included an examination of how these programs varied across insurers and how program costs compared given insurers’ per enrollee claims costs. The results shows that for the 30 percent of insurers with the highest claims during this time period, there was a significant change. Before risk adjustment, claims for those insurers exceeded their premium revenues by $90-$397 per enrollee per month. After risk adjustment and reinsurance were factored in, that figure fell to $0-$49 per enrollee per month. Further, the reinsurance program will reimburse insurers for high-cost enrollees covered before 2017.
Study limitations. The limitations of the study were that the reports these figures were based on were aggregated to the plan level, preventing analysis of individual determinants of health risk or assessing improvements to the model. Further, during this time period, insurers were only just learning to gather, aggregate and submit data to CMS, so some data may have been incomplete. The study authors also noted they were unable to measure the range of provider networks or plan efficiency, which may have affected claim costs. Plans may have been underpriced in early years of the marketplaces.
Further discussion warranted. The results of the study suggest that the risk adjustment and reinsurance programs were relatively well targeted for that time period. Previously, insurers with higher health risks or fewer enrollees fared substantially worse than those with lower risks or more enrollees financially. After these programs were implemented, financial results were much more similar. These results may help inform restructuring of risk adjustment and reinsurance programs to better promote competition in health insurance markets going forward.
Companies: Health Affairs
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