One of the risks U.S. health insurers face this year is uncertainty about three big new Patient Protection and Affordable Care Act (PPACA) risk management programsThree actuaries write about the risk related to the PPACA reinsurance, risk corridors and risk adjustment programs in an article in the Society of Actuaries’ Health Watch journal.

The actuaries — Daniel Pribe, Richard Tash and David Tuomala — were analyzing the strains PPACA changes could put on a health insurer’s capital and surplus. The drafters of PPACA created the so-called “three R’s” programs in an effort to help insurers cope with PPACA-related claims risk.

  • The temporary reinsurance program is supposed to protect individual and small-group insurers against the risk of insuring more patients who turn out to have catastrophically expensive health problems.
  • The temporary risk corridors program is supposed to protect the companies selling “qualified health plan” (QHP) coverage through the new PPACA exchange system against bad overall underwriting results.
  • The permanent risk adjustment program is supposed to reward insurers for covering high-risk people as the plan year is still under way.

Using the three R’s programs could be more expensive than insurers expect, errors in assumptions about enrollment and morbidity could throw off projections, and the risk transfer payments may fail to completely reflect all PPACA-related morbidity risk, the actuaries write.

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“The impact of these unknowns will not be independent,” the actuaries write. “Additionally, one needs to consider the long-term horizon past 2014.”

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