Health Reform WK-EDGE ‘Do it yourself’ software assists with 2016 risk adjustment model implementation
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Wednesday, August 10, 2016

‘Do it yourself’ software assists with 2016 risk adjustment model implementation

By Harold Bishop, J.D.

A guidance document providing instructions for the HHS risk adjustment models for the 2016 benefit year is available from CMS to assist individual and small group health insurance plans available both inside and outside the Marketplaces (CMS Letters, August 2, 2016).

The Center for Consumer Information and Insurance Oversight (CCIIO) at CMS oversees the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) provisions related to private health insurance, including the permanent risk adjustment program in section 1343 of the ACA. The permanent risk adjustment program is designed to protect against the potential effects of adverse selection by transferring funds from plans with relatively low risk enrollees to plans with relatively high risk enrollees. The HHS risk adjustment methodology was first finalized in the HHS Notice of Benefit and Payment Parameters for 2014 Final rule (78 FR 15410), which was published on March 11, 2013.

The 2016 benefit year methodology that HHS will use will calculate a plan average risk score for each covered plan based upon the relative risk of the plan’s enrollees, and apply a payment transfer formula in order to determine risk adjustment payments and charges between plans within a risk pool within a market within a state. Modifications to the HHS risk adjustment methodology for the 2016 benefit year are described in the HHS Notice of Benefit and Payment Parameters for 2016 Final rule (80 FR 10749), which was published on February 27, 2015 (see 2016 issuer and Marketplace rule provides benefit and payment parameter standards, March 4, 2015).

Specifically, the 2016 risk adjustment methodology:

  • is developed on commercial claims data for a population similar to the expected population to be risk adjusted;
  • employs the hierarchical condition category (HCC) grouping logic used in the Medicare risk adjustment program, but with HCCs refined and selected to reflect the expected risk adjustment population;
  • establishes concurrent risk adjustment models, one for each combination of metal level (platinum, gold, silver, bronze, catastrophic) and age group (adult, child, infant);
  • results in payment transfers that net to zero within a risk pool within a market within the state;
  • adjusts payment transfers for plan metal level, geographic rating area, induced demand, premium assistance Medicaid alternative plans, and age rating; and
  • transfers funds between plans within a risk pool within a market within a state.

In addition to instructions for the HHS risk adjustment models for the 2016 benefit year, the document contains key revisions from the software instructions posted on the CCIIO website on October 19, 2015.

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