Analysis calls out risk adjustment 'biases and inaccuracies'

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Adding to criticism of the federal risk adjustment program, a new analysis finds that the current model “contains clear biases and inaccuracies” that threatens the stability of the individual and small-group insurance markets.

The analysis was conducted by a group called Consumers for Health Options, Insurance Coverage in Exchanges in States (CHOICES), which includes the National Alliance of State Health CO-OPs and other groups that seek changes to certain Affordable Care Act provisions. CO-OPs and other smaller plans have been the most vocal critics of the risk adjustment program, saying it unfairly penalizes them and rewards larger carriers. Maryland’s CO-OP, Evergreen Health, has sued the federal government over alleged flaws in the program.

By comparing insurers’ risk adjustment transfers for 2015 to its state individual market filings for its analysis, CHOICES says that several concerning trends emerged. Insurers with relatively low market share in a state were much more likely to have large risk adjustment transfers per member, and such insurers also were more likely to experience volatility in year-over-year risk adjustment liability.

Insurers with the largest positive margins had large positive risk adjustment receipts. It adds there was a similar correlation between negative risk adjustment transfers and negative margins.

There was in fact a correlation between risk adjustment payments and indicators of high-risk members--indicating the program is working as intended--but the report also notes “a concerning number of outliers” that don’t fit that pattern. That is particularly troubling for those insurers that pay into the risk adjustment program and depend on relatively high reinsurance payments, the analysis says, as the latter will end after the 2016 benefit year.

Taken overall, the findings show that “it is critical for regulators to assess current results to ensure known problems with the methodology are not creating imbalances that will reduce competition” among insurers, CHOICES says.

The federal government has indicated it is open to changes to the risk adjustment program, but it has also argued that in general, the program is working as intended, FierceHealthPayer has reported.

- here’s the analysis