Health exchange managers in Massachusetts are trying to take charge of a complicated job: Protecting health insurers against the possibility that the Patient Protection and Affordable Care Act (PPACA) could flood them with expensive enrollees.

PPACA gives each state the option of managing high-cost enrollee flood risk themselves or letting the U.S. Department of Health and Human Services (HHS) handle the job.

Analysts at the Massachusetts exchange — the Health Connector — say they could do a much better job than HHS, by using local claims data, by splitting the claims data used into more condition categories, and by reflecting the way the state’s health plans are designed.

Daniel Apicella, the Health Connector finance director, recently talked at Massachusetts’ PPACA risk-management options in a presentation prepared for an exchange board meeting.

Health Connector believe the predictive accuracy of the state’s own model is about 47 percent to 53%, and that the federal model has a predictive accuracy of just 29 percent to 36 percent, Apicella said.

Improving methods for predicting enrollees’ costs “enhances the potential for stabilization,” and a well-run stabilization program “increases cost predictability from the perspective of [the] carriers, allowing them to price more aggressively,” Apicella said.

The board voted to extend a contract with an actuarial consulting firm, Milliman, and have Milliman help it get HHS permission to run a local risk-adjustment program. For 2013, the contract has a maximum value of $1.9 million.

PPACA
PPACA opponents are still trying to kill or block implementation of the law.

If the law takes effect on schedule and works as expected, it will require  HHS and state governments to make exchanges, or Web-based health insurance supermarkets, available to individuals and small employers in all states and the District of Columbia.

PPACA also will create new tax subsidies for moderate-income people who want to buy commercial coverage; impose a new tax on many individuals who fail to have a minimum level of coverage; require all individual and small-group carriers to sell coverage on a guaranteed-issue basis, and put tight restrictions on  carriers’ ability to use personal health information in pricing coverage.

To buffer insurers against the possibility that health insurers will suddenly find themselves covering many new enrollees who need triple bypass surgery and organ transplants, PPACA has created three risk-management options:

  • Reinsurance: Either HHS or a state can run a temporary reinsurance program. The program will be funded by insurer and benefit plan administrator payments to HHS.
  • Risk corridor: HHS will run a temporary risk corridor program that will limit the gains and losses of the “qualified health plans” (QHPs) that sell coverage through the PPACA exchanges. HHS will fund this program using direct settlements between the QHP issuers and HHS.
  • Risk adjustment: Either HHS or a state can run a permanent risk-adjustment program that redistributes a portion of carriers’ premiums based on how sick or healthy the carriers’ enrollees are. This program, which will involve non-grandfathered individual and small-group plans both inside and outside the exchange system, will be funded by contributions from insurance issuers. 

Health Connector officials are calling the risk-management options the “three R’s.”

A working group has been studying the three R’s options for Massachusetts since November 2011.

State lawmakers moved in July 2012 to approve efforts by the Health Connector to run a state-based risk-adjustment program.

Massachusetts
Running a state-based risk-adjustment program would take large amounts of claims data.

The Health Connector is in a good position to come up with the data, because Massachusetts already has a state All-Payer Claims Database, and the database already has a mechanism in place for collecting enrollee, claims and product information from insurers, Apicella said.

Even in Massachusetts, the database managers would have to start collecting new types of data and improve the data quality, Apicella said.

But improving the database for PPACA risk-adjustment program purposes should also help other state initiatives, Apicella said.

Massachusetts applied for permission to set up its own program in January.

Once Health Connector managers get approval for the risk-approval, they will focus more on operations and getting data infrastructure ready to support the exchange program, Apicella said.

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