Risk adjustment gets overhauled for 2018 under CMS proposal

CMS proposed a series of adjustments it intends to strengthen the Affordable Care Act (ACA) insurance exchanges for 2018, including some initiatives insurers have been pushing for, such as pooling high-cost enrollees and adjusting for special enrollment customers. 

The timing for the annual Notice for Benefit and Payment Parameters is notable, as its normally released in November. Rolling it out on Aug. 29 follows weeks of bad news for the exchanges, like the exit of another major insurer, Aetna, and reports that 19 percent of enrollees will be limited to one insurer’s plans for 2017.  

“Right now, we are preparing to serve millions of consumers with a new set of innovations during the upcoming Marketplace Open Enrollment," said CMS Acting Administrator Andy Slavitt. "As we do this, we are proposing today a set of critical actions based upon our first 3 years' experience that, if finalized, would improve how consumers and health plans interact with the Marketplace. These proposals help fulfill the promise that affordable, quality health coverage can be provided to everyone who needs it."

The proposal would change one of the most controversial parts of the ACA: the risk adjustment program. The only permanent risk mitigation mechanism in the law, it was designed to take money from insurance plans with healthier patients and transfer it to plans with sicker, costlier enrollees. It’s been blamed for the failure of many of the 23 ACA co-ops, with some organizations suing CMS, alleging the program favors older, large insurers.

CMS detailed three changes to risk adjustment in its proposal:

1. Pooling high-cost enrollees. To help spread the risk of high-cost enrollees, the agency would establish a program similar to reinsurance, using a claims threshold of $2 million and a coinsurance rate of 60 percent. First, CMS would adjust for these enrollees for “excluding a percentage of costs above a certain threshold level in the calculation of enrollee-level plan liability risk scores so that risk adjustment factors are calculated without the high-cost risk. Secondly, to account for the issuers’ actuarial risk for costs associated with the high-cost enrollees, we would apply an adjustment for each issuer of a risk adjustment covered plan to account for a percentage of all high-cost enrollees’ costs above the threshold.”
2. Accounting for partial-year enrollees. Insurers had pushed for this change after special enrollment period (SEP) customers were shown to have higher average healthcare costs than those who signed up during open enrollment. CMS would create a variable to adjust for risk based on how many months a SEP customers has been covered by a plan.
3. Incorporating drug use data. Risk adjustment is currently determined by claims data only. The change would base which plans have sicker patients on 11 drug-diagnosis pairs, including HIV/AIDS and Hepatitis C.

It also includes smaller changes, like refining the five-year ban on insurers re-entering the marketplaces after exiting to make it easier for companies to return, and some tweaks aimed at helping enrollees, like making it easier to compare networks of competing plans before buying coverage.

The proposed rule will be published Sept. 6, followed by a 30-day comment period.