- In its first-year, experience among individual insurers in the Affordable Care Act’s risk-adjustment program varied considerably, an analysis by the American Academy of Actuaries (AAA) found.
- For example, risk-adjustment transfers, as a percentage of premiums, were typically larger for insurers with smaller market shares, according to the report.
- The report recommended further research to better understand the source of these variations.
The ACA-mandated risk-adjustment program is intended to even the playing field by shifting funds from health plans with lower-cost enrollees to those with higher-cost, or sicker, enrollees.
To keep scores in check, CMS now requires insurers get an initial validation audit of their risk score data. Once that is done, the agency will conduct a second partial validation audit of the data.
AAA's analysis of ACA's risk adjustment program noted for the 2014 plan year, plans expected to receive risk corridor payments only received 12.6% of those payments, which CMS last November stated it eventually wants to make good on its promise to insurers.
But some payers were counting on those payments to make ends meet while taking on consumers with higher risks. Failure to receive those expected payments led to some of the ACA-created health co-ops plans to shutter their doors or be forced out of the system. Of the 23 nonprofits co-ops, only 11 remain.
So, yes, some insurers experience with the risk adjustment program varied.
“Some of these differences may be due to underlying differences in premiums (e.g., due to different provider discounts), operational issues (e.g., technical issues with loading data), and difference in coding practices, many of which may decline over time,” AAA's analysis stated. Research could help to sort out whether variations in financial outcomes stem from risk adjustment, premium levels, or administrative expenses.
As plans gain experience with the program and its operational and technical processes, some of the uncertainty may lessen, according to the report, which stresses the importance of monitoring risk-adjustment experience over time.
The analysis also found insurers’ premiums need to reflect the level of risk in the entire market pool, not just their beneficiaries. This was especially difficult in 2014 when there was a lot of uncertainty about enrollee risk profiles, the report says.
The report suggested ways CMS could further the program’s goals. Recommendations included incorporating pharmacy data in risk-adjustments, a change the agency is already weighing; updating the model coefficients and metal tier induced demand factors; adjusting for high-cost outliers; adjusting for partial-year enrollees; and basing risk-adjustment transfers on the part of the state average premium that relates to claims.