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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:
Meanwhile, the top five payers of transfer dollars were:
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?
Looking to up your commercial risk adjustment performance in 2018? Download our checklist, “8 tips for a seamless commercial risk adjustment program.”