5 Reasons the New ACA Risk-Adjustment Storm Could Blow Over, for Agents

The Centers for Medicare and Medicaid Services (CMS) says it will stop making payments to insurers under the Affordable Care Act risk-adjustment program payments while it resolves legal problems.

CMS Administrator Seema Verma announced the payment suspension Saturday, as insurers were racing to complete individual and small-group rate filings for 2019 coverage. The individual major medical open enrollment period for 2019 coverage is supposed to start Nov. 1.

America’s Health Insurance Plans, a big health insurer trade group, blasted news of the sudden ACA risk-adjustment program freeze.

“We are very discouraged by the new market disruption brought about by the decision to freeze risk-adjustment payments,” AHIP said in a statement. “This decision will have serious consequences for millions of consumers who get their coverage through small businesses or buy coverage on their own. It will create more market uncertainty and increase premiums for many health plans — putting a heavier burden on small businesses and consumers, and reducing coverage options.”

But the health insurers, consumers and agents still in the individual major medical market have faced a series of what looked like market-killing threats since key ACA individual market rules and programs came to life in January 2014. For now, the market is still here.

(Related: 5 Weird New Facts About Trump’s ACA Exchange System)

This year, for example, in spite of all of the many challenges facing agents and brokers in the individual major medical market, agents and brokers helped 3.7 million sign up for 2018 exchange plan coverage. The number of exchange plan users helped by agents and brokers was down just 1% from the 2017 total.

There are some early signs that, at least in some states, the market could do better in 2019. In some states, insurers have asked for average individual major medical rate increases under 10%. Agents and brokers might get more opportunities than they expect to earn commissions, or enrollment fees, by helping people sign up for exchange plan coverage.

Full-blown chaos in the individual major medical market could create interesting opportunities for produces to sell memberships in health care cost sharing ministries, short-term medical insurance, association health plan coverage, hospital indemnity insurance and other alternatives to individual major medical insurance.

A temporary squall that blows over could cause the worst scenario for producers: A situation in which consumers put off making decisions about purchases and may, in the end, go through 2019 without any protection against medical bills whatsoever.

If the current risk-adjustment program freeze lasts, it could affect about $5.2 billion in payments owed for 2017. The payments to insurers affected could amount to about $3.8. billion, or 5%, of the 2017 non-grandfathered individual major medical market premiums included in the program, and about $1.3 billion, or 2.5%, of the $52 billion in small-group major medical market premiums included in the program.

CMS doubles the payment figures when it reports total transfer figures, because it includes both the payments insurers are supposed to pay and the receivable are supposed to receive in the overall transfer totals. When the system is working properly, the payables are supposed to be about the same as the receivables.

Here are five things for the agents and brokers who are still the individual major medical market, or who would like to get back in, to know about the latest threat that could wreck everything.

1. The ACA risk-adjustment program freeze is just another chapter in the ACA “three R’s” problems story.

The drafters of the ACA hated medical underwriting. They wanted people with obesity or diabetes to be able to get the same coverage for the same price that everyone else paid.

The drafters eliminated many of the weapons insurers once used to hold down claim risk, such as the ability to reject people who needed organ transplants.

The drafters tried to help health insurers cope by adding the ACA premium subsidies, by using the individual health coverage mandate to push healthy people to pay for coverage, and by setting up three new risk management programs:

i. A temporary reinsurance program. This program used fee revenue from all health coverage providers to help insurers pay the bills of individual major medical insurance users with catastrophic claims. This program, which generated enough revenue to pay its obligations, ended in 2016.

ii. A temporary risk corridors program. This program was supposed to ease health insurers’ worries about participating in the ACA publication exchange system, by using cash from thriving issuers to help struggling exchange plan issuers. This program flopped miserably: It raised only enough cash from thriving issuers to pay about 15% of the first-year claims. Insurers are suing to try to get the federal government to pay the rest of the program obligations. The risk corridors program ended in 2016.

iii. The ACA risk-adjustment program. This is a permanent program. It uses a “risk scoring ” system to assign everyone with individual or small-group major medical coverage a risk score. Plans that end up with enrollees with a low average risk score are supposed to pay cash to compensate the plans that end up with higher-risk enrollees.

Most big health insurers have been skeptical about the performance of all of the three R’s programs since October 2015, when news of the flop of the ACA risk corridors program surfaced. It’s not clear how optimistic any health insurers have really been about their ability to get any ACA risk management programs to pay up.

The less confidence the remaining players had in any ACA program to run smoothly, the less impact the risk-adjustment freeze will have.

2. CMS says it’s making a serious effort to try to keep the ACA risk-adjustment program going.

President Donald Trump has talked about wanting to repeal and replace Obamacare, but his administration seems to be supporting some parts of the ACA, and it’s possible that it may really want to get the risk-adjustment program back on track.

The Trump administration has let the courts block the ACA risk corridors programs.