During the first two years that they were implemented, the Affordable Care Act’s risk adjustment and reinsurance programs proved helpful financially for health insurers with the highest claims costs, a new study has found.
The study, published by Health Affairs, examined how risk adjustment and reinsurance transfers varied across insurers in 2014 and 2015, as well as assessed how payments from both programs compared across insurers given their level of per-enrollee claims costs.
Under the ACA’s permanent risk adjustment program, insurers with healthier enrollees contribute to a fund that redistributes money to insurers that end up with sicker-than-average enrollees. The temporary reinsurance program, on the other hand, reimburses a portion of insurers’ spending on high-cost enrollees regardless of the enrollees’ health status relative to the average.
For the 30% of insurers with the highest claims costs in 2014 and 2015, claims exceeded premium revenues by $90–$397 per enrollee per month before including payments from the risk adjustment and reinsurance programs. After including those payments, their revenues exceeding claims costs dropped to just $0–$49 per month.
Those results indicate that both programs, at least in the early years, were “relatively well targeted," according to the researchers. In other words, they evened out the financial performance between insurers with higher-risk enrollees and those with lower-risk enrollees, and leveled the playing field for those with fewer enrollees compared to those with more.
“There is ongoing discussion regarding the future of the ACA, but our findings remain pertinent for understanding how risk-sharing programs can address risk selection among insurers, which is a pervasive issue in all health insurance markets,” the researchers write.
Not all reviews of the risk adjustment program, however, have been so positive. Several insurers—some of which have resorted to suing the federal government—have complained that the program’s methodology is flawed because it effectively penalizes more efficient plans. And on a recent conference call, Molina Healthcare’s CEO said the insurer might exit the marketplaces in 2018 due to its risk-adjustment-related losses.
In December, the Centers for Medicare & Medicaid Services finalized several changes to the program effective in 2018 as part of what it called the “next generation risk adjustment model.” The changes include allowing the use of prescription drug utilization data to better account for enrollees’ health risk.