BCBSA study: Despite high-profile failures, the ACA's risk adjustment is working

Financial struggles at Bright Health Group and Friday Health Plans have raised concerns about how well the Affordable Care Act's (ACA's) risk adjustment program is working, especially whether it's unfairly harming smaller insurers.

However, a new analysis backed by the Blue Cross Blue Shield Association and conducted by Oliver Wyman aims to dispel these fears. For one, the study examining 2021 risk adjustment data found that by and large, the funds were moving from payers with low claims to those with high claims.

The goal of the program is to make it easier for insurers to participate on the ACA exchanges by distributing funds from payers covering fewer high-cost enrollees to those that are covering larger numbers of high-cost patients. The ACA barred insurers from using adverse selection and refusing to cover people with high healthcare needs.

"Having a system that balances the risk of low-cost consumers and high cost consumers is really critical to ensuring that the market works correctly, and that that high cost consumers can get access to affordable products," said Kris Haltmeyer, vice president of policy analysis for BCBSA, in an interview with Fierce Healthcare.

The analysis also did not find evidence that smaller payers are especially disadvantaged in the program. The researchers found that 65% of smaller issuers received risk adjustment payments in 2021; however, smaller plans do see more variance in their payouts per member per month compared to larger payers.

The study did find one area of concern, though, as plans that enroll large numbers of people with high care costs are being underpaid through risk adjustment.

"We believe the data presented here shows that neither small, nor new issuers are being disadvantaged by the risk adjustment system," the researchers wrote. "We also believe that the data presented here shows that plans enrolling a disproportionate share of high-cost enrollees are generally disadvantaged."

But what of Bright and Friday? The study concludes that these are likely cases that are against the norm, as both insurers took aggressive pricing strategies when they entered the ACA market.

By offering large numbers of low-cost plans, both gained access to significant customer bases at the likely expense of their own financial performance, rather then suffering at the hands of risk adjustment itself, the report said. Haltmeyer called the strategy a "self-inflicted wound."

"I think this report makes clear that the pricing decisions of issuers probably were the major reasons why some of these issuers have failed in recent years," he said. 

He said that BCBSA commissioned the study largely as an "educational research resource" for policymakers who are taking a closer look at the risk adjustment. As the program is generally working as intended, the analysts would argue that major reforms aren't necessary.

That said, if regulators or lawmakers do want to make changes, looking at ways to further ease the burden of high-cost claims would be the place to start, Haltmeyer said.

"Carriers are getting compensated for a very small portion of that risk today," he said. "And so I actually, I actually think that in order to ensure that we have a market where the carriers do not compete based on risk, which is the original design of the ACA, that it could actually be improved to ensure the risk adjustment program works a little better with regard to high cost claimants."

Editor's note: This story was updated to remove an inaccurate data point from the report.