New Report Shows Why Some Issuers Hate the ACA Risk-Adjustment Program

Insurers have had to price new individual and small-group coverage without considering any personal health factors other than location, age and tobacco use.

The ACA risk-adjustment program is supposed to give issuers a little protection against the elimination of their old defenses against claim risk. Program managers try to compensate the insurers that end up with more than their fair share of the enrollees with serious health problems, such as diabetes, cancer and HIV.

The ACA risk-adjustment program is similar to older risk-adjustment programs that CMS has used to even out risk for the issuers in the Medicare Advantage and Medicare Part D prescription drug plan markets.

ACA risk-adjustment program managers assign each enrollee a health risk score. The managers then use a formula to estimate how much health risk each individual and small-group major medical issuer in a market has assumed.

Issuers with low average enrollee risk scores are supposed to pay cash into the program.

Issuers with high average risk scores are supposed to get cash out.

The program does not affect “grandfathered coverage,” or coverage sold before all of the current ACA underwriting and benefits rules took effect.

Program administrators have sketched out the risk-scoring rules through public documents, but they have completed the work with private meetings with the affected insurers. The affected insurers have said little about what goes on at the risk-adjustment program participant meetings.

Insurers have raised a number of concerns about the program, including:

• Worries about what happens when issuers fail, or simply refuse to pay their risk-adjustment program bills.
• Whether the risk scores adequately reflect the relative risk of enrollees.
• Whether the issuer-level scoring approach is fair to new and rapidly growing plans, which may have little information about enrollees’ health.
• Whether the issuer-level scoring formula is fair to plans with low average premiums.

Other ACA Risk-Adjustment Report Highlights

CMS uses major medical insurance market summary figures to calculate the ACA risk-adjustment program payables and receivables.

That makes the June risk-adjustment reports a good summary of how CMS officials think the individual and small-group major medical markets performed.

The June reports include only the individual and small-group coverage subject to all ACA rules, not to “grandfathered” policies written under the old rules.

According to the new ACA risk-adjustment program report:

• The average monthly premium for all non-grandfathered, non-catastrophic individual major medical coverage increased 20%, to $472.
• The number of issuers in the ACA risk-adjustment program fell 7.8%, to 654.
• The number of issuers of non-grandfathered, non-catastrophic individual major medical coverage fell 20%, to 373.
• The number of issuers of non-grandfathered small-group major medical coverage fell 6.7%, to 515.
• About 21% of enrollees in the 2017 non-grandfathered, non-catastrophic individual major medical risk pool had at least one worrisome health condition included in the risk-scoring process, and 3.2% had three or more worrisome health conditions.

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