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PPACA risk programs: Will those kidneys work?

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Managers of the public health insurance exchange programs are trying to lock in menus and rates for the 2016 open enrollment period, which is set to start Nov. 1 and is supposed to run until Jan. 31, 2016.

Analysts say the 2016 plan information they can get now suggests the menus will look good, both on and off the Patient Protection and Affordable Care Act (PPACA) exchange shelves.

See also: Florida unveils 2016 individual health chessboard

But regulators, exchange managers and insurers have a problem: They’re creating the 2016 plan menus and setting the 2016 plan prices without having a clear idea of how the individual PPACA-compliant health insurance products in effect during 2014 did, let alone how the products in force for 2015 are doing this year.

The financial sustainability of individual health insurance products is unclear because officials at the Center for Consumer Information and Insurance Oversight (CCIIO), the arm of the U.S. Department of Health and Human Services (HHS) in charge of PPACA commercial health insurance programs, is still determining what health insurers will have to pay into, and get out of, the PPACA “three R’s” risk-management programs.

Keeping track of how each of the three programs work is complicated, but, for agents, brokers and clients, the effects of severe, unexpected problems with the temporary PPACA reinsurance program, the temporary PPACA risk corridors program and the permanent PPACA risk-adjustment program could be painfully clear: health insurance plan options could suddenly vanish from the shelves.

Insurers might have to suspend marketing of some or all of their plans, or even suspend operations.

See also: Failed health plan had $2,400 in unpaid claims per enrollee

Will three R’s surprises lead to health insurer pneumonia, or just yet another over-hyped case of the PPACA hiccups?

For a three R’s refresher, and three quick peeks at what PPACA watchers, federal agencies and insurer rate filings have been saying about the three R’s lately, read on.

People taking notes

Three R’s primer

PPACA blocked health insurers from using personal health information in decisions about issuing coverage starting in January 2014, and it also stopped health insurers from using personal health information other than age, location and, in some states, tobacco, when pricing individual health coverage.

To keep the underwriting rules from swamping health insurers with unexpected claims, or giving insurers incentives to send sick applicants elsewhere, PPACA drafters created the three R’s.

Kidneys help the body by evening out levels of salt and other substances in the bloodstream. The three R’s are meant to perform a comparable function for the PPACA-regulated commercial health insurance system, by evening out the levels of claim risk flowing through the market.

The reinsurance program is supposed to use revenue from a broad-based fee collection effort protect individual health insurers against covering enrollees with catastrophic claims in 2014, 2015 and 2016.

The risk-adjustment program is supposed to be a permanent program that will use cash from insurers with enrollees with relatively low risk scores to help the insurers with high risk scores.

The risk corridors program is supposed to use cash from exchange plan issuers with good operating results for 2014, 2015 and 2016 to help exchange plan issuers that have poor results in those years. To calculate the risk corridors program cash transfer amounts, program managers need to know what the PPACA reinsurance payments and PPACA risk-adjustment program cash transfers will be.

CCIIO reported earlier this year that it took in more than enough fee revenue to meet 2014 reinsurance program obligations.

But the agency says insurers filed conflicting reports for the 2014 reinsurance and 2014 risk-adjustment programs. 

Because of obvious errors and data conflicts, the agency has ordered many health insurers to recheck their filings and explain what CCIIO reviewers believe to be errors and conflicts.

See also: CMS sees possible insurer PPACA data integrity problems 

Radar

What the three R’s trackers say

Officials at CCIIO and at CCIIO’s parent agency, the Centers for Medicare & Medicaid Services (CMS), have been notoriously quiet about the three R’s programs.

Analysts at the U.S. Government Accountability Office (GAO) reported in May that some insurers said CCIIO officials had stopped answering any questions about the three R’s during the first PPACA open enrollment period — from October 2013 through early 2014.

CCIIO and CMS apparently needed to focus all of the resources they could muster on getting the HealthCare.gov federal exchange enrollment system and the state-based exchange enrollment systems up and running, but insurers told GAO investigators the agencies’ lack of guidance slowed insurers’ efforts to understand and comply with the three R’s reporting requirements.

The officials’ questions also raised questions about whether the agency officials themselves understood how the three R’s would work.

PPACA drafters tried to base the risk-adjustment program, for example, on the Medicare Advantage risk-adjustment program, which has been in operation since 2007.

One big difference is that the Medicare Advantage risk-adjustment program is set up in such a way that plan issuers wrestle over enrollee risk assessments only with Medicare program managers, not with other insurers.

Aaron Vandervelde, a consultant at Berkeley Research Group who has helped clients understand and participate in the Medicare and PPACA risk-adjustment programs, noted in an interview that even the Medicare Advantage risk-adjustment risk assessment program is still evolving.

“The implementation of risk adjustment is very different in the exchanges,” Vandervelde said.

But Vandervelde said he believes the CMS staff has the technical ability to run and improve both the Medicare risk-adjustment program and the PPACA risk-adjustment program.

At Medicare, “I think they’re making it better,” Vandervelde said.

Insurers and providers have also been working to make the Medicare risk-adjustment program work better, by using data analytics tools to understand how they’ve been assigning diagnosis codes to claims and identify problems with whether some providers are using diagnosis codes that make cases look simpler or more severe than they really are, Vandervelde said.

Tom Kornfield, a vice president at Avalere Health who previously helped run the Medicare risk-adjustment program, said he think the Medicare risk-adjustment program is “pretty solidly in place.”

“The people there are very bright and really know the model well,” Kornfield said.

Good CMS risk-adjustment people have been helping CCIIO set up the PPACA risk-adjustment system, Kornfield said.

Insurers also seem to have a good understanding of how CMS calculates patient risk scores, Kornfield said.  

See also: Inovalon agrees to acquire Avalere 

Image: Hemera/Bram Janssens

HealthCare.gov

What officials at CCIIO and CMS agency say

Officials at CCIIO and CMS have been posting many batches of three R’s advice on public CCIIO Web pages and the semiprivate CMS Regtap website in recent weeks.

On Regtap, for example, CMS recently published a 2015 reinsurance program contributions glossary for the 2015 benefit year, and a three R’s reporting schedule for the 2015 benefit year. Officials told health insurers that they should be ready to provide baseline enrollment and claims estimates for the first half of 2015 by Oct. 21, 2015.

CMS also posted a detailed, 37-page 2014 risk corridors discrepancy worksheet guide, for insurers that seem to have filed inaccurate data for the 2014 benefit year.

“A representative that can financially bind the company must attest to the data for all issuers included in the worksheet before submission,” officials say in the guide.

Insurers do not have to give enrollee-by-enrollee explanations, or show that dollar figures are accurate to the dollar, but figures “are expected to be accurate to one quarter of one percent of the claims or premium amount, as applicable,” officials say.

Officials have raised the possibility that problems with three R’s numbers could be big enough to cause noticeable headaches for some health insurers.

CCIIO officials said in one recent memo to insurers that the potential impact of some inaccuracies on issuers “may be substantial.” 

See also: Insurers can change risk-adjustment data, if that hurts

2016

What the health insurer rate filings say

Some state health coverage rate regulators have posted full preliminary, or even full final, 2016 rate filings on the Web.

Comprehensive figures showing how big projected three R’s transfers are in relation to insurers’ resources do not appear to be readily available, but a look at a few of the individual on-exchange rate filings for 2016 suggests that the value of the cash transfers coming from or going to just one of the programs, the risk-adjustment program, could amount to a significant percentage of health insurers’ premium revenue.

In past years, publicly traded health insurers typically reported net income levels ranging from about 1 percent to 10 percent of revenue.

In Connecticut, a unit of Anthem (NYSE:ANTM) expects to charge an “index rate,” or apples-to-apples base rate, of about $500 per month for coverage in 2016. It was hoping to get a risk-adjustment transfer of about $38 per member per month, or about 7.6 percent of premium revenue, for 2014, but the early CCIIO risk-adjustment transfer estimates posted in June show it may actually get about $26 per member per month, or about 5.2 percent of revenue, according to the unit’s final rate filing.

Similarly, another carrier in the state, ConnectiCare Benefits Inc., originally suggested it might pay in 15 cents per member per month, or about 0.03 percent of its $519 index rate, but the preliminary CCIIO risk-adjustment estimate shows the company might actually have to pay about $22 per member per month, or about 4.4 percent of premium revenue.

In Iowa, a Wellmark unit is expecting to have a 2016 individual index rate of about $445 per month. The company originally thought its 2016 risk-adjustment payment would be about $77 per member per month, or 17 percent of premium revenue, but, based on the CCIIO estimates released in June, the company is thinking it may have to pay $92 per member per month, or 21 percent of revenue, into the risk-adjustment program.

In California, Dena Mendelsohn, a staff attorney with Consumers Union, has questioned how a unit of Anthem handled three R’s estimates in a 2016 individual rate filing filed with the California Department of Managed Health Care.

Anthem said it needed to include buffers in its rates for uncertainties about how the three R’s will work.

Mendelsohn objected to that reasoning.

“The federal 3 R programs are designed to address uncertainties in the initial years of the ACA, and, for the most part, these programs have served the purpose for which they were designed,” Mendelsohn writes.

Mendelsohn has encouraged California regulators to ask whether uncertainty about the three R’s included in its rate filing “is anything other than an attempt to increase profits.”

See also: California measure would let consumers sue over health rates