Feds flip flop on Risk Adjustment Payments – Heartburn for some; Antacid for others

​In early July, the Feds announced that they were suspending the ACA’s Risk Adjustment Program, causing an uproar. Later this same month, they reversed themselves. Find out why some carriers are breathing a sigh of relief while others are now popping Alka Seltzer. 

On July 1, 2018, the federal government announced that they would suspend the Risk Adjustment Program’s 2017 funding.  Par for the course these days, they reversed themselves on July 25, 2018 following an uproar over the initial suspension.  Why the big deal? There’s a lot of money at stake. To refresh your memory, carriers in the individual and small group markets pay into this fund if they insure a healthier population, while other carriers are paid out of the fund if they have sicker members.  In the State of Washington alone, there will be about $115 million that will be changing hands. 

How does the Risk Adjustment Program work?
Originally, this program was included under the ACA regulations as a way to mitigate volatility in the marketplace.  ACA Risk Managers assign each enrollee in an individual or a small group plan a health risk score.  A formula is then used to estimate the health of an insurer’s overall membership based on these scores.  Those with healthier members pay into the fund, while those with sicker members receive funds. 

This program, similar to the ones the Centers for Medicare & Medicaid Services (CMS) has used to even out risk under the Medicare Advantage and Medicare Part D programs, is cost-neutral.  The amount carriers pay into the fund annually will equal the funds distributed to other carriers for that same calendar year.

Why suspend the Program?
A federal judge in New Mexico ruled earlier in the year that the methodology used to set health risk scores and the carrier’s overall member health was not transparent enough.  Thus, the suspension of the program in early July was intended to provide the administration more time to respond to the judge’s concerns, and to hold off on collecting and distributing money during August (the usual timing for the prior calendar year).  Due to the delay, the collection and payment of funds will not take place until October this year.

Washington State’s Dollars
The individual market and small group market have separate Risk Adjustment Programs.  As mentioned earlier, there will be about $115,000,000 changing hands between carriers in our state. The individual market accounts for $96,800,000 of this amount, while the small group market totals $18,300,000. 

Who are the biggest “winners” and “losers” in Washington?

THOSE PAYING INTO THE FUNDS:

• Kaiser will pay in about $65,600,000
• Centene will pay in about $33,300,000
• United will pay in about $1,600,000
• Molina will pay in about $1,100,000

THOSE BEING PAID OUT OF THE FUNDS:

• Cambia will be paid about $77,100,000
• Premera will be paid about $20,600,000
• Community Health Plan will be paid about $2,800,000
• Aetna will be paid about $1,100,000

 
With this kind of money at stake, you could hear the collective sigh of relief from carriers such as Cambia and Premera.  But from the other direction, you could hear the groans from carriers like Kaiser and Centene.  Keep in mind, this averted crisis is but only one of the multiple controversial parts of the ACA.  The temporary Reinsurance Fund and Risk Corridor payments (or should I say non-payments) are still being battled in the courts. The individual penalty is being lowered to $0 starting January of 2019.  Association Health Plan expansion rules are being fought by over 10 states.  Changes will be coming for Short Term Medical plans

​As always, we’ll keep our ear to the ground. Oh, and we recommend keeping a steady supply of antacids on hand for the heartburn sure to come.

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Want to delve deeper?

• CMS’s Summary Report on Permanent Risk Adjustment Transfers for the 2017 Benefit Year
• Kaiser Family Foundation’s outline of Risk Adjustment, Reinsurance, and Risk Corridors

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