In its first year, the Affordable Care Act's risk adjustment program helped control costs for insurance companies with high-risk enrollees, but several modifications could improve the program's consistency, according to a new report.
Overall, the program helped balance loss ratios tied to high-risk patients in 2014, with the majority of insurers with a higher loss ratios (claims versus premiums) receiving a larger risk adjustment payment, according to the American Academy of Actuaries.
Reinsurance program payments, set to expire in 2016, helped balance costs for patients with unusually high claims.
Still, insurers with a smaller market share saw more variability in risk adjustment transfers, reflecting ongoing concerns that the program favors larger, entrenched plans, leaving smaller, innovative plans to foot the bill.
Other factors, including claims processing, technical and operational issues and accurate coding, varied among insurers, but should even out as the program continues.
Several modifications could improve the risk adjustment model, including:
- Incorporating pharmacy data and socio-economic status
- Adjusting for high-cost outliers and partial year enrollees
- Basing risk adjustment transfers on the claims-related portion of the state average premium
Many insurers, including several consumer operated and oriented plans, have been critical of the risk-adjustment program they say favors larger insurers. Last month, insurers aired their concerns about the program in a meeting with officials from the Centers for Medicare & Medicaid Services, arguing it runs counter to the ACA's intent.
CMS has said it is looking into whether the risk adjustment methodology "appropriately addresses plan differences."
- read the American Academy of Actuaries report
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