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CMS: Everyone Will Help Stabilize Individual Health Issuers

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Group health insurers will join with individual health insurers to fund a temporary individual health insurance reinsurance program, according to officials at the Center for Consumer Information & Insurance Oversight (CCIIO).

The CCIIO, an arm of the Centers for Medicare & Medicaid Services (CMS) at the U.S. Department of Health and Human Services (HHS), talks about temporary and permanent PPACA risk adjustment mechanisms in a final rule on PPACA-related risk management standards and a separate document analyzing the possible regulatory impact of that final rule and other PPACA final rules due to come out shortly.

In September, CCIIO officials argued that getting the risk-management mechanisms right is crucial to maximizing health care efficiency and quality. Otherwise, the officials said, doctors might have an incentive to deliver more expensive care when cheaper care would be at least as good, or skimp on inexpensive treatments that could reduce the risk of devastating, costly complications.

CCIIO officials developed the risk-management final rule and the analysis to implement provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA) that are supposed to buffer health insurers against some of the effects of switching to new market rules in 2014.

If PPACA takes effect on schedule and works as drafters expect, the law will require insurers to sell individual coverage on a guaranteed-issue, mostly community-rated basis.

PPACA drafters have tried to decrease the likelihood that sicker people will buy health insurance and healthier people will get insurance only when they think they will be sick by requiring most individuals with incomes over a certain level to own health coverage.

The individual health coverage ownership mandate has angered people who believe the federal government has no constitutional authority to force them to buy a commercial product. Others say the penalty for doing without health coverage is low enough that many will continue to go uninsured, leading to possible problems with antiselection.

During the first three years the new market rules are in effect, PPACA is supposed to create two transitional risk management programs: a federally run “risk corridors” program that will require the health plans participating in the new health insurance distribution exchanges to share in health care system losses and gains with the federal government.

PPACA also will create a state-based reinsurance program that will require all health insurers in a market to contribute to a fund that will protect individual health insurers.

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The “transitional reinsurance program is redistributive from the broad health insurance market to the individual market,” officials say. “This serves to stabilize premiums in the individual market while having a minimal impact on large group issuers and plans. Reinsurance will attenuate individual market rate increases that might otherwise occur because of the immediate enrollment of higher risk individuals, potentially including those currently in state high risk pools.”

Insurers will pass the cost of the program on to enrollees. That should increase overall premiums by about 1% but cut individual market premiums by 10% to 15%, officials say.

New York state has had a similarrisk adjustment program in place since 2001, and that’s how its program has worked, officials say.

PPACA also is supposed to create a third risk-management program, a permanent risk-adjustment program that will redistribute cash from plans with relatively low-risk enrollees to plans with older, sicker enrollees.

A state could run its own risk-adjustment program, hire an outside entity to run the program or let the exchange run the program.

In a state that lets the federal government provide exchange services for its residents, the federal government will oversee risk adjustment.

The programs may require reports similar to those required by managed Medicaid programs and the Medicare Advantage program, and issuers that participate in those programs might not see much change in administrative requirements, officials say.

Running the claims database needed to support the program could cost about $350,000 to $2 million, and, from 2014 and 2016, health plans with low-risk enrollees could transfer a total of about $27 billion to issuers with higher-risk enrollees, officials say.

“The risk-adjustment program … serves to level the playing field inside and outside of the exchange as payments and charges are applied to all non-grandfathered individual and small group plans,” officials say.