3 ways the ACA individual health market foundation cracked

Ordinary people’s eyes start to glaze over when they hear the phrase the “Affordable Care Act risk-adjustment program,“ but, of course, that’s like people’s eyes glazing over when they hear about the “foundation of a house,” or “the human kidney.”

Foundations may seem boring when they’re intact, but, when they break down, a homeowner can face big repair bills.

Kidneys may seem boring when they’re doing a good job of maintaining the right amount of water and other substances in a patient’s blood. When kidneys stop working, they become more interesting. Toxins may build up in a patient’s body and poison the patient to death, or excess fluid may build up in the patient’s lungs and drown the patient.

The ACA risk-adjustment program is supposed to act like a kidney for the individual commercial health insurance market and the small-group commercial health insurance market.

The designers of the ACA system stripped away most of the defenses health insurers once used to keep applicants with known, serious health problems from smothering them with health claims. The risk-adjustment program is a permanent program that helps issuers defend themselves against one specific health claim threat: the possibility that the sickest enrollees will flood into certain plans, possibly because those plans offer great prices, benefits or doctors for sick people, and choke those plans with huge medical claim costs.

The Centers for Medicare & Medicaid Services (CMS), the agency that manages the ACA risk-adjustment program, tries to stabilize the flow of health risk by pulling money from issuers with enrollees with low health risk scores, and pushing the money to issuers with high risk scores. 

Related: 10 top ACA individual risk-adjustment bills

The program came to life in 2014. CMS and insurers are just now publishing the data actuaries and other observers need to understand how the risk-adjustment kidney is really working.

Frederick Busch, a consulting actuary at Milliman, and three colleagues at the Seattle-based actuarial and consulting firm, have used the program performance figures available for 2014, and the preliminary numbers available for 2015, to size up the program.

The analysts warn against giving the first year or two of data from such a complex program too much weight.

“It is rather easy to list the various reasons why the results may or may not maintain a level of consistency over time,” the analysts write.

The analysts say factors that could throw off results include everything from ACA public exchange system enrollment glitches to insurers’ efforts to learn to use the risk-scoring system CMS set up.

Results could even depend partly on insurers’ success at learning how to feed the health risk data into CMS computers, the analysts say.

But there are some signs hinting that the ACA kidney might be having problems.

For a look at what the Milliman analysts found when they crunched the available program data, read on:

Some health insurers that pulled cash from the program in 2014 may have been shocked at how healthy their enrollees looked in 2015. (Photo: Thinkstock)

1. Swings in health risk hit 14 percent of the issuers hard.

The ACA risk-adjustment program affects only individual commercial health insurance plans that comply fully with the ACA major medical rules that took effect in January 2014. The program does not cover temporary health insurance, Medicare plans, or individual health coverage that’s allowed to operate under the rules in effect before January 2014.

The size of the individual health risk-adjustment program grew between 2014 and 2015 partly because use of individual commercial health insurance increased, and partly because more of the individual health coverage in force complied fully with the new ACA rules. 

Milliman found that the total number of individual health insurance issuer billable months covered by the risk-adjustment program increased to about 163 million in 2015, up 62 percent from the 2014 total. 

The issuers ended up with the equivalent of about 14 million people with year-round individual commercial health coverage.

The average amount of premiums collected per month increased just 3.1 percent, to $363.