Could PPACA premium tax credits help with risk-adjustment?

A health policy specialist at the American Enterprise Institute has some ideas about ways to improve the Patient Protection and Affordable Care Act (PPACA) risk-adjustment program.

Dr. Scott Gottlieb, a physician who used to work for the U.S. Food and Drug Administration (FDA), testified about his PPACA tax credit ideas Wednesday at a House hearing.

The PPACA risk-adjustment program is supposed to use cash from health insurers with enrollees with low health risk scores to help insurers with high-risk enrollees.

A division at the Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health Human Services (HHS), now runs the system. CMS pulls enrollee data from health insurers, uses the data to calculate marketwide numbers, then uses a combination of the insurer-specific numbers and marketwide numbers to calculate risk-adjustment bills.

Insurers have complained that they have a hard time estimating how much they will have to pay into or get out of the program.

Gottlieb said at the hearing, which was organized by the House Energy & Commerce health subcommittee, that policymakers could make the system work better by building more risk-adjustment muscle into the PPACA premium tax credit subsidy program.

Moderate-income consumers now use the PPACA premium tax credits to pay for exchange plan coverage. The size of the tax credit depends solely on the enrollee’s income and the type and cost of the coverage purchased.

If the tax credits were bigger for older, sicker people, that would give insurers a quick, easy way to balance at least some health risk through market forces, Gottlieb testified, according to a written version of his remarks posted on the committee website.

“Risk adjustment provides an inducement for health plans to seek out people with costlier conditions, and get them better,” Gottlieb said.