CMS: Risk adjustment, reinsurance 'working as intended'

In a new report that seems to contradict claims that the individual health insurance market is collapsing, the federal government says the Affordable Care Act’s risk adjustment and reinsurance programs are effective at compensating health plans that enroll higher-risk individuals.

The report, from the Centers for Medicare & Medicaid Services, details the amount of money insurers are owed from the two programs for the 2016 benefit year and how much they are expected to pay into the risk adjustment program.

"Both the transitional reinsurance program and the permanent risk adjustment program are working as intended in compensating plans that enrolled higher-risk individuals, thereby protecting issuers against adverse selection within a market within a state and supporting them in offering products that serve all types of consumers," the report says.

One sign that both programs are working well, per the report, is that the amount of paid claims was strongly correlated with both reinsurance and risk adjustment transfers. In other words, insurers with higher claims costs were more likely to receive risk adjustment payments and to receive larger reinsurance payments, while those with relatively lower claims costs were more likely to have to pay into the risk adjustment program.

That may be little comfort, however, to some insurers that are facing high payments into the risk adjustment program. Molina Healthcare of Florida, for example, is facing a $252.6 million charge, and the company’s California plan owes $106.5 million and its Texas plan, $126 million.

Before he was ousted from the company’s top leadership role, erstwhile CEO J. Mario Molina criticized how the risk adjustment program was structured and blamed it for mounting losses in the insurer’s ACA exchange business last year. Some consumer operated and oriented plans made similar complaints, and wound up suing the government over it.

With new leadership now in place at Molina, Leerink Partners analyst Ana Gupte, Ph.D., thinks the insurer could be poised for an ACA exchange exit in 2018, noting that such a move would have a positive effect on its earnings next year.

“While [Molina] has already filed rate requests for 2018 exchange participation in all the nine states in which it is present, the company can reassess its decision to participate by mid-September,” she noted.

Molina’s woes aside, the CMS report notes another positive sign for the risk adjustment program, which unlike reinsurance is intended to be permanent. Namely, risk adjustment transfers as a percent of premiums were similar in the 2014 and 2015 benefit years, the agency said. In addition, predictability between interim and final risk scores “noticeably improved” in the 2016 benefit year, CMS says, which it attributes to receiving higher quality data from insurers earlier in the submission process.

The CMS report’s findings echo a study published earlier this year, which concluded that both the risk adjustment and reinsurance programs were “relatively well targeted” in 2014 and 2015.