To create a competitve, viable health insurance market governed by the Patient Protection and Affordable Care Act (PPACA), regulators must make sure rates are high enough to protect against losses as well as low enough to avoid excessive burdens on consumers.
Adrian Clark and James O’Connor, analysts at Milliman Inc., give that assessment in an analysis of PPACA health plan risk mitigation programs released by the Society of Actuaries (SOA), Schaumburg, Ill.
The SOA commissioned Milliman to look at three major programs that are supposed to help health plans guard against the risk that sicker patients will overwhelm some plans once PPACA consumer rules take effect in 2014.
If PPACA takes effect on schedule and works as drafters it expect, the law will require plans to sell coverage on a guaranteed-issue basis, forbid plans from considering most health status indicators when setting rates, and limit the difference between what plans can charge the oldest insureds and the youngest insureds.
PPACA drafters tried to minimize the likelihood that shifts in risks related to those changes would hurt health plans by creating three risk mitigation programs:
A permanent risk adjustment program that would shift funds from plans with healthier enrollees to plans with less healthy enrollees.
A temporary reinsurance program for plans that enroll individuals with high claims costs.