Simple ACA Risk Adjustment Fixes Could Increase Choice & Reduce Costs
The COVID-19 pandemic has led to the highest rate of unemployment in the United States since the Great Depression. Even as the economy has gained millions of jobs over the last couple of months, millions of Americans are filing new unemployment applications. Many of these newly unemployed Americans are losing access to their employer-provided health coverage and may now turn to the individual marketplaces created by the Affordable Care Act (ACA). These Americans need and deserve a variety of options, and a robust array of available options increases both competition and affordability.
Unfortunately, the number of insurers participating in the ACA individual marketplace has declined from 308 in 2015 to 202 in 2019 — a drop of 34 percent, leading to less choice and competition. In fact, in many areas of the country, only a single health insurer remains on the market.
One of the biggest reasons for declining participation is a federal program created by the ACA and operated by the Centers for Medicare & Medicaid Services (CMS) known as risk adjustment. The basic idea behind the program is simple: Health plans with less risky, healthier enrollees transfer funds to plans with riskier, sicker enrollees according to a complex set of calculations within each state market. In theory, risk adjustment transfers funds so that insurers are indifferent to the health status of their enrollees and design a wide variety of products.
A recent white paper by Brian Blase, former Special Assistant to President Trump at the White House’s National Economic Council, found that “[the] decline [in health plan participation] was driven by large losses from market-wide adverse selection, with risk adjustment making the situation unbearable for many insurers, particularly smaller ones.” Blase found that according to reporting data on the individual market approximately 19.5% of health plans anticipate paying risk adjustment transfers in excess of 10 percent of the total plan premium. Transfers of this scale epitomize the problems with the risk adjustment program.
Blase also found the ACA risk adjustment program results in massive transfers from most insurers offering ACA plans in the individual and small group markets to Blue Cross Blue Shield plans. In his white paper, Blase determined that the aggregate amount of risk transfers going to Blue Cross plans has increased from $460 million in 2014 to $2.94 billion in 2019 in the individual and small group markets combined.
Regional health plans are critical to the marketplace because they add competition and provide enrollees with additional affordable options. However regional health plans are much more vulnerable to the impact of risk adjustment payments than larger plans. To remain viable and offer the lowest possible premium prices to enrollees, regional plans must be stable and profitable, but sizeable transfers, which can vary substantially and unpredictably from year to year, can make that incredibly challenging. For example, Geisinger Health Plan in Pennsylvania received a risk transfer payment of $10 million in 2016 but paid $13 million and $34 million in 2017 and 2018 respectively, before receiving $5 million in 2019. These large swings destabilize the marketplace and can force health plans, particularly regional carriers, from the market or cause them to increase premiums on their enrollees to compensate for the risk adjustment transfers.
Smaller plans may be particularly vulnerable because they often lack a presence in every part of a state. To attempt to address this issue, CMS publishes reports intended to give health plans insight into state markets and risk adjustment. These reports should be valuable resources, but inadequacies in the reporting make the problems worse.
The reports come out only after the conclusion of a benefit year, and when they do, they include inaccuracies. Since regional health plans have a smaller share of the market, they are particularly impacted by inaccuracies in data released by the government. CMS acknowledges this issue, stating “smaller issuers may experience a wider degree of variation, given the impact larger issuers have on transfers within a state market risk pool.” So, CMS is aware that small plans are at a disadvantage, but has done little to help regional plans, despite reports of frequent substantial swings between predicted and actual transfer amounts. For example, Priority Health reported a 32 percent swing between predicted and actual risk adjustment transfers in 2016. In 2018, a Security Health Plan reported a swing of 140 percent and Geisinger Health Plan experienced an incredible 631 percent swing.
If regional health plans cannot trust CMS reports, how can they be expected to accurately predict and plan for the impact of risk adjustment transfers year over year?
Fortunately, CMS can improve reporting and help plans better understand risk adjustment and each state’s marketplace. Rather than releasing reports only after the end of the benefit year, CMS should provide an additional, mid-year report. Health plans should also be required to submit more data for the reports and the reports should include additional data points, such as the age of beneficiaries and the types of plans they are enrolled in, to create a clearer picture, making it easier to accurately predict transfers.
We urge the administration to make these critical changes to the risk adjustment program to increase competition and affordability in the individual marketplace. Not only would these changes make it easier for plans currently in the market to compete on a level playing field, it might even encourage other health plans to re-enter the marketplace increasing competition and health plan affordability within each state.
Kurt Wrobel is the President of Geisinger Health Plan, Marti Lolli is Chief Marketing Officer and SVP of Priority Health, and Marty Anderson is the Chief Growth Officer of Security Health Plan. All three are members of the Initiative For Health Care Affordability, a coalition of regionally-based insurance plans.
