Health insurance actuaries are waiting to see if economists (and the actuaries who advised them) have created a health insurance exchange system tough enough to survive both the usual market forces and opponents’ efforts to drown it.
Rebecca Stob, a health insurance actuary in Washington state, has written about some of the questions on her mind in a new commentary on the “three R’s” risk-management programs — mechanisms the drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) created to keep PPACA-related shifts in health risk from smashing the exchanges and the participating health insurers.
“There are a still a lot of moving parts,” Stob writes. But she says there are reasons to think the three R’s could perform somewhat better than a quick look at early data might suggest.
The state of the information available is still too poor for anyone to draw confident conclusions about what’s going on, Stob says.
Actuaries are watching the performance of the three R’s programs closely because those programs are part of the scaffolding that’s supposed to keep the PPACA exchange system from dying as quickly as most similar systems have died in the past.
Economists have been trying for decades to use insurance exchanges to make the world’s health care systems more efficient. Some of the exchanges were called “purchasing cooperatives.” Some were called “purchasing pools.” What most of the programs had in common was the problem that the best risks soon found they could get cheaper coverage elsewhere. The flight of the best risks away from the exchange programs led to death spirals, or self-perpetuating cycles of enrollment decreases, risk-level increases and rising premiums.
PPACA drafters tried to protect the PPACA exchange system from going down the same anti-selection drain by creating mechanisms both to lock consumers into the exchange system and push consumers toward the exchange system. Some of those mechanisms included the essential health benefits (EHB) standardization system; the open enrollment calendar system; and the individual and employer coverage mandates.
The PPACA drafters and implementers also tried to stabilize the system with the “three R’s” risk-management systems:
a reinsurance program that’s supposed to use an assessment on most health plan enrollees to help PPACA-compliant individual and small-group insurers pay the bills of enrollees who submit catastrophic claims in 2014, 2015 and 2016;
a risk corridors program that’s supposed to use cash from insurers with good underwriting results for 2014, 2015 and 2016 to help insurers that get poor underwriting results during those years;
and a risk-adjustment program that’s supposed to cash from insurers with low-risk enrollees to compensate insurers with high-risk enrollees.
The U.S. Department of Health and Human Services (HHS), and the HHS agency in charge of PPACA implementation, the Centers for Medicare & Medicaid Services (CMS), have released little information about three R’s program operations since 2010. CMS has been holding webinars for insurance company administrators on how to feed data into the three R’s systems on a semiprivate server. But CMS seems to have released actual three R’s performance data only in a little-noticed announcement that the reinsurance program may collect only about $10 billion of the $12 billion managers had hoped to collect, and a difficult-to-interpret table showing how CMS thinks federal efforts to let consumers keep pre-PPACA coverage longer than expected hurt insurers’ results.
For a look at what Stob is still asking about the three R’s, read on.
1. How did each of the affected health insurers actually do in 2014?
PPACA calls for insurers to start collecting money from the three R’s programs for the 2014 plan year.
Some insurers voluntarily put the information needed to estimate three R’s performance in their financial filings for the first three quarters of 2014, but the insurers were not required to do so, and many did not. Many are just starting to file the reports that include a full four quarters of final 2014 data now.
2. How did health insurers in each market and state do?
PPACA requires an insurer to use summary data for all of the insurers in a state, and the markets within a state, to calculate risk-adjustment program cash transfers.
The three R’s managers who came up with the risk-adjustment program’s process for collecting the official data needed for implementation “had a very theoretical and incomplete understanding of health insurance data,” and the data collection process ”has been a complete hot mess,” she says.
CMS has not provided any of the market comparison data that insurers need to calculate transfers, Stob says.
“Needless to say,” Stob says, “the ability of insurers to make confident predictions about the state of their data vs. the rest of the market is not very good.”
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3. How much did insurers’ efforts to adjust for uncertainty throw off the numbers now available, and in what direction?
Stob notes that many insurers probably tried to be conservative when they were reporting the claims, reinsurance and risk-adjustment information used in the risk corridors program.
If a company has been trying to take a consistent, conservative approach to reporting, it might have overstated the amount it would get from the risk corridors program, or understated the payable, and it likely would have left out the effects of state-specific adjustment factors, Stob says.
“So, overall, with the addition of those state-specific adjustments, I think there is still likely to be more money owed to insurers than being paid into [risk corridors], but it may not be quite as bad as it looks now,” Stob says.