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Life Health > Health Insurance

The main PPACA risk-balancing system: Can it work?

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Designers of a framework for a big health insurance risk-balancing system, the Patient Protection and Affordable Care Act (PPACA) risk-adjustment program, have to balance insurers’ hunger for information against a need to protect program honesty.

That’s the assessment of Tom Kornfield, a vice president at Avalere Health, one of the firms that will be helping health insurers and other companies understand the program.

See also: Inovalon agrees to acquire Avalere 

“Having increased transparency in the process would help improve trust on the part of the industry,” Kornfield said in an email interview. “It is possible to provide plans with more information that would make the entire process less of a guessing game.

But, if program managers give the coverage issuers much more information about the risk-adjustment process, “that would need to be balanced against concerns that plans would be able to collude,” Kornfield said.

PPACA calls for issuers of individual major medical coverage, and fully insured small-group coverage, to give each enrollee a health risk score, based on a list of health condition diagnosis codes. The risk-adjustment program managers would use the plans’ health risk information to shift cash from low-risk plans to high-risk plans.

In theory, a successful risk-adjustment program could free health insurers from worries about PPACA curbs on use of personal health information in health insurance sales. A successful risk-adjustment program could make covering a 45-year-old patient with hemophilia and diabetes as profitable as covering a healthy 25-year-old.

The Center for Consumer Information and Insurance Oversight (CCIIO), the division of the Centers for Medicare & Medicaid Services (CMS) in charge of starting and running the risk-adjustment program, released a risk-scoring discussion paper Thursday. CCIIO has scheduled a risk-adjustment issuer conference for March 31.

See also: CMS schedules PPACA risk-adjustment clash

In the past, many “health insurance purchasing cooperatives,” and other programs that resemble the PPACA individual and small-group health coverage framework, failed because of a lack of effective risk-adjustment mechanisms. Low-risk players ran away once they saw that they would be paying extra to subsidize high-risk players.

PPACA drafters have tried to glue their regulatory framework together by using federal law to require all issuers of individual and small-group major medical coverage to follow the same benefits mandates and underwriting rules, and to participate in the risk-adjustment program.

Kornfield warned, shortly before the CCIIO discussion paper came out, that problems with the PPACA risk-adjustment program could weaken efforts to hold the PPACA insurance market framework together.

“If the risk-adjustment model is inaccurate, then plans that enroll a disproportionate share of sicker enrollees may experience financial losses and exit the market, even if they have priced premiums accurately,” Kornfield said in a statement. “By appropriately compensating plans, an accurate model encourages plans to compete based on cost, quality, and health management.”

CMS already runs a similar risk-adjustment program for the Medicare Part D prescription program, but one big, important difference is that the results simply affect how much cash CMS sends to each participant. No participant has to pay cash into the Medicare Part D risk-adjustment program.

In the email interview, Kornfield said health insurers of all sizes have expressed concerns about the PPACA risk-adjustment program rules.

“However, it is important to note that the ones receiving transfer funds are less likely to raise concerns than those being charged,” Kornfield said.

In addition to facing the threat that an insurer might have to pay cash into the PPACA risk-adjustment program, another problem is that if the program works as now envisioned, an insurer will start out not knowing what its relative risk score is, or how much it might get from, or pay into, the risk-adjustment program, according to Kornfield.

“Some average risk score information by state, based on real-time data, would be useful to plans if provided in a timely fashion,” he said.

A major obstacle to CCIIO providing more information is program managers’ fear that insurers, and insurers’ risk-scoring consultants, would use the information in ways that would distort plans’ risk scores.

Some of the nonprofit, member-owned Consumer Operated and Oriented Plans (CO-OPs) that have failed have already complained that PPACA risk programs hurt them because they came to life without knowing much about their enrollees, in part because of many of the enrollees had lacked regular access to health insurance or health care before they signed up for CO-OP coverage. CO-OP managers have argued that their plans had no good way to provide the kinds of detailed diagnosis code information needed to produce accurate plan health risk data.

See also:

PPACA risk programs: Will those kidneys work?

UnitedHealth Says N.Y. PPACA risk-adjustment program could be in trouble


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