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amid healthcare reform, ACA risk stabilization goes on

July 06, 2017

While the House and Senate attempt to re-write healthcare policy, the pressing problems that the Affordable Care Act (ACA) aimed to address are still at play and being managed by healthcare providers and payers alike, with a continued focus on how to manage the individual and small-group markets. The Senate delayed the vote on the latest bill, the Better Care Reconciliation Act of 2017 (BCRA), just prior to the holiday recess due to a lack of support. Lesley Brown, vice president of risk adjustment at Verscend, examines the latest efforts to repeal and replace the ACA and offers her takeaways from the newly released data on transitional reinsurance payments and permanent risk adjustment transfers for the 2016 benefit year.


The Congressional Budget Office (CBO) estimates that under the BCRA, 22 million Americans would either lose or voluntarily give up their health insurance by 2026 due to cost, increasing the total number of uninsured Americans to 49 million by 2026 compared to 28 million under the ACA. This reduction in the number of uninsured comes with a financial tradeoff: the CBO estimates that the BCRA will reduce the cumulative federal deficit over the next ten years by $321 billion. This is substantially more than the estimated net savings for the House version of the bill, the American Health Care Act (AHCA).


These savings come primarily from Medicaid reductions and the repeal or modification of various ACA tax provisions. While there is some consensus that the BCRA legislation would allow the non-group or individual market to remain stable, and may even increase the total individual market projections, doubt about the exact impacts of the new law would likely cause some health insurers to withdraw from the individual market in some states, continuing the current trend currently being seen under the ACA.


This is unfortunate, since the ACA’s risk stabilization programs, including reinsurance, risk adjustment, and risk corridors, appear to be working as intended—as evidenced by the 2016 benefit year report released last week by the Centers for Medicare & Medicaid Services (CMS). Although issuer participation has decreased from previous benefit years, our high-level takeaways from this report are that both the transitional reinsurance and permanent risk adjustment programs continue to operate smoothly, and that both programs are fulfilling their function of protecting plans that enroll high-risk, high-cost members.


The intent of the risk adjustment methodology is to compensate issuers that enrolled higher risk individuals and guard against adverse selection within a market and within a state. Transfers for the 2016 benefit year were similar to those made for the 2015 and the 2014 benefit years, speaking to the stability of the commercial risk adjustment program. The absolute value of risk adjustment transfers averaged 6 percent of premiums in the small group markets and increased slightly to 11 percent in the individual market, primarily due to a shift in healthy enrollees from platinum and gold plans to silver and bronze.


The amount of total claims paid by issuers also correlated well with the risk adjustment transfers. Overall, this successfully affords protection against adverse selection for insurers and permits them to offer health insurance products that serve a full range of consumers.


The top five recipients of transfer dollars were: 

  1. Blue Cross and Blue Shield of Florida ($488 million)
  2. California Physicians (Blue Shield California) ($371 million)
  3. Blue Cross of California (Anthem Blue Cross) ($266 million)
  4. Oxford Health Insurance (New York) ($255 million)
  5. Blue Cross and Blue Shield of North Carolina ($170 million)

Meanwhile, the top five payers of transfer dollars were: 

  1. Kaiser Foundation Health Plan (California) (-$437 million)
  2. Molina HealthCare of Florida (-$252 million)
  3. Celtic Insurance Company (Florida) (-$160 million)
  4. North Shore-LIJ Insurance Company (New York) (-$131 million)
  5. Molina Healthcare of Texas (-$125 million)

Note that four of the top five recipients of transfer dollars received payments in both the individual and small group pools, indicating that they have a positive selection for high-risk members in both markets. In contrast, only two of the five largest payers of transfer funds paid into both markets, with the other three abstaining from the individual or catastrophic market.


When it comes to how issuers’ payments into and receipts from the commercial risk adjustment program are varying year by year, two Blues plans are particularly interesting. For the 2015 benefit year, Blue Cross and Blue Shield of North Carolina received $67 million for the individual and $15 million for the small group markets. This payment more than doubled for the individual market in benefit year 2016 to $150 million. A similar scenario played out for Blue Cross Blue Shield of Minnesota, which received $29 million for the individual market in benefit year 2015, and then almost four times that ($109 million) in benefit year 2016. This type of volatility between years is likely to raise questions, such as whether the issuer’s member risk profile could change that drastically in a single year.


How should the commercial market interpret the latest report? 

  • While big dollars are eye-catching, comparing your organization’s results to the other issuers in your particular markets on a per-member per-month basis will provide a more accurate assessment of how you are performing.
  • The big transfer numbers are a result of several factors, not the least of which is issuers’ excellence in performing underlying data submittal and risk adjustment enhancement activities. Rigorous HCC analytics and medical record coding can result in risk score gains, and even small changes in risk scores can have a large impact on the formula and associated transfer amount. Even though risk adjustment seems to be doing its job, there’s no question that if plans invest more effort, they see better results.
  • To be accurately paid under the latest payment formula, plans need to accurately submit as close as possible to 100 percent of their claims. The 90 percent threshold set by CMS is a minimum target, and every issuer should benchmark to reach a higher level, especially year over year.


Looking to up your commercial risk adjustment performance in 2018? Download our checklist, “8 tips for a seamless commercial risk adjustment program.”

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As vice president of product at Verscend, Lesley drives the product strategy for Verscend’s end-to-end Risk Adjustment solutions, ensuring that we continue to deliver innovative and compliant solutions for our customers. She has more than 30 years’ experience in product and project management in the healthcare and pharmaceutical industries. Before joining Verscend, she served as senior vice president of product management at Halfpenny Technologies, a leading provider of clinical data exchange solutions for healthcare providers. She also previously served as senior vice president of care management products for TriZetto, where she was accountable for the quality, delivery, and support of the software solutions in the its care management portfolio, and she held multiple positions at Alere Health. Lesley is the co-author of 10 U.S. patents and has been published in 16 peer-reviewed scientific and clinical journals.

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