CMS finalizes changes to risk adjustment program

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On Friday, the Centers for Medicare & Medicaid Services released the 2018 Notice of Benefit and Payment Parameters final rule Friday.

Newly finalized regulations from the federal government create a “next generation risk adjustment model” aimed at stabilizing the Affordable Care Act marketplaces.

On Friday, the Centers for Medicare & Medicaid Services released the 2018 Notice of Benefit and Payment Parameters final rule (PDF). One of the major themes is stabilizing the risk pool, which the agency says builds upon other recent actions that tighten special-enrollment period rules and address the issue of third parties paying enrollees’ premiums.

RELATED: HHS tweaks rules for short-term marketplace plans, risk adjustment

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Here’s a look at some of the key ways that the newly finalized rule changes risk adjustment, as outlined in a CMS fact sheet:

  • It incorporates partial-year adjustment factors in the adult 2017 and 2018 benefit year risk adjustment models, based on feedback that the existing model under-predicted claims costs for those who are enrolled in plans for only part of the year.
  • It creates a pool for high-cost enrollees, in which an adjustment to issuers’ transfers would fund 60% of an issuer’s costs for individuals with claims above $1 million. In effect, this means CMS is planning to use the risk adjustment program to partially replace the phased-out reinsurance program, Tim Jost notes in a Health Affairs Blog post.
  • It allows for the use of prescription drug utilization data to better account for the health risk associated with insuring individuals with certain serious health conditions.
  • It will use masked enrollee-level data from the external data gathering environment (EDGE) servers to recalibrate the risk adjustment models beginning in the 2019 benefit year. The EDGE data will also inform development of the annually released Actuarial Value Calculator and risk adjustment methodology.

The risk adjustment program has faced criticism that its formula unfairly rewards larger carriers at the expense of smaller ones. The issue led at least three consumer operated and oriented plans to sue the federal government.

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