ACA risk adjustment may be changed despite improvements in risk pool

In two separate announcements from HHS, the agency said while the risk pool for the health insurance exchanges has improved, it’s “exploring options” to adjust the Affordable Care Act’s risk adjustment program to account for sicker, more expensive enrollees.

HHS has made several moves in 2016 aimed at assuaging insurers’ concerns that the customers on the ACA exchanges are riskier to cover than expected, including publicly releasing its strategy to attract eligible younger customers to purchase health coverage. The message of its new report, however, is that the individual risk pool got better between the first and second open enrollment periods.

The agency came to the conclusion based on the slight decrease in per-enrollee claims in the ACA market, which fell by 0.1 percent between 2014 and 2015 (compared to a 3 percent increase in the broader insurance market). In the 10 states with the greatest enrollment in growth saw per-enrollee claims fall by an average of 5 percent.

“The strength of the individual market risk pool has been closely watched by observers and participants, since a broader mix of enrollees reduces costs and helps keep coverage affordable for consumers,” the agency said. “Experts expected the ACA risk pool to improve over time as enrollment grew, and the new data suggest this occurred in 2015.”

Thanks to the nearly unchanged per-member per-month claims in 2015, the report said the 2 percent increase in premiums would’ve been enough, on average, to cover claims, but not enough to cover the gaps between prices and costs, or to cover losses insurers were protected from by the ACA’s transitional reinsurance program.

A blog post from Healthcare.gov CEO Kevin Counihan cited the risk pool improvements, but said the exchanges remain a “young, maturing” market which insurers, providers, and regulators are still learning how to navigate. While he didn’t suggest extending the reinsurance program, he did say the permanent risk adjustment program may be modified to achieve “some of the same risk-sharing benefits.”

“The current HHS risk adjustment methodology cannot easily adjust for certain high-cost enrollees,” Counihan wrote. “In future rulemaking, we plan to propose modifying the risk adjustment program to absorb some of the cost for claims above a certain threshold (e.g. $2 million), funded by a small payment from all issuers. This type of risk sharing would reduce uncertainty for issuers who are not yet able to reliably predict the prevalence and nature of high-cost cases in their Marketplace business, while also protecting access to robust coverage options for people with very high-cost conditions.”

Counihan seemed to dismiss the idea of state-funded high-risk pools, a pre-ACA mechanism he said was used by 35 states, to make the marketplace pool healthier (notably, high-risk pools are a part of the latest House Republican plan to repeal and replace the ACA). Instead, he mentioned states could fund their own reinsurance programs, as Alaska has done, with the possibility that federal funding could cover part of the extra cost.

Any proposed rulemaking would have to begin quickly to have an effect on the forthcoming open enrollment period. The end of the transitional reinsurance program has been blamed for large increases in proposed exchange premiums offered by insurers, such as the average 13.2 increase requested in California.