Risk adjustment program: Why small insurers shouldn't get a free pass

Despite some complaints about the risk adjustment program, it would be unfair and detrimental to give any insurer a "free pass" to get out of participating in it, argues a recent Health Affairs blog post.

In the post, John Bertko, who serves as the chief actuary for Covered California, says that risk adjustment for 2014--the first full year of the ACA--is "off to a solid start." The program transfers funds from insurers with healthier, lower-cost enrollees to those with costlier, sicker enrollees.

In California, for example, nearly all health plans on the exchange were profitable and risk adjustment helped mitigate insurers' concerns about operating in the individual market, Bertko notes.

Another sign that the concept is working, according to Bertko, is the fact that Aetna has now started to advertise directly to diabetics because the insurer believes that not only can it help manage costs for this population, but also that the risk adjustment program will pay it enough to be profitable when taking on enrollees with chronic conditions.

Some smaller and newer insurers, though, have said that risk adjustment has benefitted larger, powerful payers at their expense. One way to make the program fair, according to the CEO of Maryland's consumer operated and oriented plan, is for CMS to limit the percentage of risk adjustment payments that insurers must make to no more than 2 percent of the carrier's premium for the year

CMS is in fact taking steps to address some of the industry's concerns, as it said in a recent discussion paper that it is looking into ways to ensure risk adjustment methodology "appropriately addresses plan differences," such as pooling high-cost enrollees, making the model more accurate for partial year enrollees and using prescription drug utilization data.

But while Bertko acknowledges that collecting data to submit to the risk adjustment program is challenging for some health plans, he advises against exempting certain insurers from participating given the industry's penchant for finding loopholes in regulations. If allowed to opt out, some insurers could find ways of avoiding covering sick individuals, he writes.

To learn more:
- read the post

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