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Posts Tagged ‘Premium Stabilization Programs’

Return to high risk pools implies failure of ACA’s single statewide risk pool

May 16th, 2017 Comments off

The return to state high risk pools encouraged by Trump administration executive action and as proposed in the American Health Reform Act pending in the Senate — mechanisms phased out with the Patient Protection and Affordable Care Act reforms of the non-group segment effective in 2014 — carries with it a critical implication. Specifically, the individual market even with single statewide risk pools mandated by Section 1312(c) the Affordable Care Act are too small —  in some less populous states at least — to achieve a sufficient spread of risk. Therefore, the logic implies, individuals with conditions who use largely disproportionate amounts of medical care must be excluded from the statewide pool and cordoned off in high risk pools in order to maintain the pool’s actuarial viability and ward off adverse selection in the individual market.

That cuts against a core assumption of the Affordable Care Act — that by having all individuals and family members in a given state treated as one large risk pool, a sufficient spread of risk would be achieved. In addition, the law’s premium stabilization programs and an ongoing risk adjustment mechanism to compensate health plan issuers who take on members with costly, complex chronic conditions would act as buffers to ensure the actuarial integrity of the pool and reduce the likelihood of adverse selection. The proposed revival of high risk pools would suggest that’s not the case and the amount of medical care utilized by some pool members is so costly that it skews an entire state’s risk pool.

This in turn leads to a far larger implication. If 5 percent of the pool population account for 50 percent of the costs — or 1 percent accounting for 20 percent to use another expression of the ratio cited in this National Institute for Health Care Management data brief — then medical care may not be an insurable risk due to insufficient spread of risk. If that’s the case, it could result in plan issuers ceding most or all of the loss risk to the government as is currently the case in Medicare and Medicaid managed care. Notably, Aetna CEO Mark Bertolini reportedly suggested just that, according to this account at Reason.com, with nominal insurers taking on the role of plan administrators handling “back room” transactions:

The government doesn’t administer anything. The first thing they’ve ever tried to administer in social programs was the ACA, and that didn’t go so well. So the industry has always been the back room for government. If the government wants to pay all the bills, and employers want to stop offering coverage, and we can be there in a public private partnership to do the work we do today with Medicare, and with Medicaid at every state level, we run the Medicaid programs for them, then let’s have that conversation.

Note the second condition in Bertolini’s statement: If employers want to stop offering coverage. Complain as they may about rising premiums in group coverage, there’s no indication that the highly entrenched employee benefit model of covering medical care for the non-elderly is going to be abandoned by employers anytime soon. Even if the Affordable Care Act’s mandate on employers of 50 or more to offer coverage is repealed given favorable tax treatment of employer-sponsored medical care plans.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Greater than expected staying power of employer-sponsored health coverage could jeopardize viability of post-ACA individual market

October 28th, 2016 Comments off

There are three basic explanations being offered up by individual health plan issuers on the eve of plan year 2017 open enrollment to justify sharply increased premiums in many states:

  1. Most of the Patient Protection and Affordable Care Act premium stabilization programs are expiring in 2017 and money is still owned plans under one of the expiring mechanisms designed to even out a given health plan issuer’s loss experience with that of other issuers;
  1. Plan issuers have more extensive loss experience data than in the initial years of the individual market segment as the Affordable Care Act reforms kicked in and it was harder to estimate what to charge;
  1. Closely related is the previous point, loss data indicates statewide individual risk pools are posting higher than expected medical utilization, with even higher utilization among plans sold on state health benefit exchanges. Premiums are thus being aligned to reflect the true quality and loss experience of the statewide risk pools.

The third point describes a dynamic situation that could change over time. For example, if medical utilization decreases and the health risk profiles of those in the individual market improve, premiums could readjust downward to reflect that more favorable environment.

However, a more long term concern that should be troubling for health policymakers voiced within some quarters of the health insurance industry is the state risk pools are unbalanced. Or to use an insurance industry term, adversely selected and skewed toward those more prone to using a lot of medical care with too few folks in the pool who use less. Those are actuarially assumed to be the so-called “young invincibles” in their twenties and thirties.

This is a larger concern because it could reflect a more long term, structural problem in the individual market as a whole. If the pool remains unbalanced, premium rates are likely to remain elevated since there are fewer premium dollars flowing into the pool from those who use less medical care to offset the expenses of higher utilizers. The longer premiums remain elevated, the greater the risk to the viability of the individual market as a whole since adverse selection tends to perpetuate an unvirtuous cycle of more people abandoning the market as premiums increase, reinforcing the need for additional premium hikes. This was the situation that existed prior to the Affordable Care Act’s 2010 enactment. Even in populous states like California, where accounts of premium increases of nearly 40 percent and an individual market poised to enter the terminal “death spiral” phase of adverse selection tipped the political scales to assure the needed votes in Congress for the law’s approval.

One of the assumptions of the Affordable Care Act’s individual market reforms is that by making individual coverage more like employer-sponsored coverage with minimum benefit requirements, annual enrollment periods and no medical underwriting, employer-sponsored coverage among smaller organizations would decline. It hasn’t turned out that way. The greater than expected staying power of employer-sponsored health coverage could reinforce an ongoing structural imbalance in the individual market, particularly in smaller states where by definition the risk pool is naturally limited.

The reason is the twenty and thirty somethings health plan issuers say they need to help achieve a good spread of risk for a balanced pool are more likely to be covered in employer sponsored plans than people age 50 and older  — and therefore not participating in the individual market. They are beginning their careers and more likely to be employed full time and whereas the latter age cohort is more likely to be retired, semi-retired, self-employed, and otherwise not employed full time by an employer offering health benefits.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Too early to declare failure of individual health insurance market statewide risk pooling

August 13th, 2016 Comments off

One of the primary reforms of the individual health insurance market under the Patient Protection and Affordable Care Act was to create a single risk pool for entire states for individual health plans effective 2014 and later. The purpose was to rescue the individual market from a death spiral crisis of adverse selection that threatened its existence. To keep their individual plans solvent pre-2014, plan issuers resorted to playing a game of whack a mole with their plans. As losses mounted in existing plans, they would shut them down and place them into runoff mode by closing them off to new enrollees. Then they set up new plans containing new enrollees stringently screened via medical underwriting in an attempt to hold down claims costs.

The result was widespread market failure. Many consumers in the individual health insurance market couldn’t purchase coverage because they couldn’t meet the increasingly strict medical underwriting criteria. Those already in existing plans faced steep premium rate increases making coverage unaffordable.

There are widely differing views on whether the Affordable Care Act’s single statewide risk pooling mechanism is achieving adequate spread of risk to remedy the adverse selection that plagued the market pre-2014. Media coverage is sloppy. Accounts such as this one conflate the statewide risk pool with the health benefit exchange marketplace. They are not one and the same. Individual plans are sold both on and off the exchanges. There is no separate risk pool for those enrolling in the individual market through exchanges and another for those who do not.

Many media reports frequently report individual market enrollees are “sicker than expected.” Higher medical utilization as the 2014 reforms kicked in was in fact expected. The Affordable Care Act contained premium stabilization mechanisms that took into account the possibility of high utilization due to pent up demand from those who were previously without coverage either voluntarily or because they fell short of medical underwriting standards or couldn’t afford the premium increases as the market imploded.

A problematic issue with current mainstream media coverage is the tendency to jump to the conclusion that high anticipated medical utilization in the early years of the individual market reforms are indicative of its long term viability. As the standard investment exculpatory disclaimer goes, past performance doesn’t guarantee future results, good or poor. Ditto short term volatility.

Respected health care industry blogger Timothy Jost offers a sharply contrasting perspective to bearish sentiment that the statewide risk pooling mechanism is a failure. He cites a report issued this week by the Centers for Medicare and Medicaid Service indicating claims costs were flat year over year from 2014 to 2015 as evidence the statewide risk pools are functional. Higher premiums for 2017, he writes, are due to health plan issuers adjusting rates to comport with actual experience in 2014 and 2015 plan years instead of the educated guessing they employed for 2014, the first year of the major individual market reforms. Also being factored in is the end of the reinsurance component of the Affordable Care Act’s premium stabilization mechanisms starting in 2017.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Departure of most loss and risk leveling mechanisms poses major test for ACA individual market reforms

May 5th, 2016 Comments off

A major test of the Patient Protection and Affordable Care Act’s individual market reforms begins with health plans effective next year — plan year 2017. That’s when two of three mechanisms designed to prevent big spikes in plan premium rates are set to go away. Their goal is to provide a degree of premium stability for plan years 2014 through 2016. They do so by balancing the spread of risk and losses among all health plan issuers, particularly given the uncertainty with the move to modified community-based rating in place of medical underwriting of individuals and families starting in 2014.

Gone will be reinsurance for plans sold through state health benefit exchanges to protect plan issuers from exchange enrollees who incur very high medical costs. Also going away is the risk corridors mechanism under which individual and small group plans whose members incurred costs exceeding 103 percent premiums collected receive subsidies from plan issuers having losses below 97 percent of premiums. Left in place for 2017 and later years is the loss leveling mechanism known as risk adjustment — whereby health plan issuers with plans having fewer members with high risk chronic health conditions transfer funds to those with higher numbers of members with such conditions.

Two big questions going forward 2017 post are 1) whether the risk adjustment mechanism alone will keep premiums from shooting upward as plan issuers signal robust premium increases are in the works for 2017 and 2) whether risk adjustment will ward off adverse selection against exchange plans by leveling risk among plans sold both within and outside the exchanges given health plan complaints of high losses on exchange plans.

Over the longer term, a looming question is to what extent for profit health plans will continue to offer individual plans in the exchanges given their function as voluntary marketplaces. “All indications are that … most insurance plans on the exchanges are yielding zero percent at the very most,” notes Vishnu Lekraj, senior equity analyst with Morningstar.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Numerous tweaks to ACA’s health insurance reforms add to law’s complexity

December 21st, 2015 Comments off

Most everyone would agree the Patient Protection and Affordable Care Act’s health insurance market reforms are complex. Adding to the complexity is their staggered, stop and go implementation as Congress and the administration apply various changes and adjustments. It also demonstrates the iterative nature of the law that continues to evolve nearly six years after it was enacted in March 2010.

The most recent addition comes in the federal budget measure signed into law late last week to fund the federal government though the end of the current fiscal year ending next fall. The measure suspends for 2017 the health insurance provider fee levied on health insurers under Section 9010 of the statute. It also pushes out the effective date of the 40 percent excise tax on high cost employer-sponsored group health plans – known as the “Cadillac tax” – to apply to plans effective in 2020 versus 2018 and makes the tax deductible. That gives unions and state and local governments that offer relatively generous plans and most likely to feel the effects of the tax more time to determine their compliance or avoidance strategies. The bill also requires a review of the suitability of indexing the tax adjustment amount to the Blue Cross/Blue Shield standard benefit option of the Federal Employees Health Benefits Plan.

The budget bill also extends a pre-existing budget provision barring the administration from allocating funds to bail out one of the Affordable Care Act’s premium stabilization programs designed to minimize premium volatility for plans sold on state health benefit exchanges. The risk corridors program levels loss experience among health plan issuers so that issuers with lower than expected claims make payments to issuers with higher than expected claims. Problem is, as this Milliman analysis explains, the playing field isn’t level. That’s because of a tweak applied in late 2013 delaying another provision of the Affordable Care Act under transitional regulatory relief. It authorized states to temporarily allow individual and small group plans to offer coverage not compliant with minimum benefit designs mandated by the law – which some states opted to do. That in turn affected claims experience among health plans, throwing the risk corridors mathematics out of whack and substantially shorting plan issuers expecting risk corridor payments. The one year suspension of the fee assessed on health plans offers plan issuers suffering higher than expected claims costs on plans written in 2014 through 2016 some offsetting financial relief before the risk corridors and reinsurance premium stabilization programs expire in 2017.

Last week’s budget bill is the third legislatively enacted change to the Affordable Care Act’s insurance market reforms in 2015. It closely follows another that allows states to elect to define their small group health insurance markets as those serving employers with 50 or fewer employees rather than 100 beginning in 2016 as the law originally required as well as the repeal of ACA Section 1511 in November’s Bipartisan Budget Act of 2015. Section 1511 requires large employers of more than 200 full time employees to automatically enroll new full time employees in one of the employer’s health plans.

(This updated version corrects and expands on a previous version of this post that incorrectly referenced ACA Section 4375)

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Diminished premium stabilization safety net possible factor in UnitedHealth Group’s decision to reevaluate exchange participation 2017 forward

November 20th, 2015 Comments off

UnitedHealth Group’s announcement this week that it’s reassessing its participation in state health benefit exchange markets for plan year 2017 cites deteriorating loss experience and increased risk. There’s another factor not mentioned by UnitedHealth that warrants discussion and analysis.

For plan years 2014-2016, health plan issuers participating in state exchanges are shielded from losses by a triple safety net built into the Patient Protection and Affordable Care Act known as premium stabilization programs. The three programs were put in place recognizing health plan issuers had no prior experience calculating premiums using new community rated statewide risk pools put in place by the law. Also, there’s the expectation that people who were previously medically uninsured are likelier to come with pent up needs for medical care and thus be costly to cover. The programs include:

  • Risk corridors, which level losses among health plan issuers so that issuers with lower than expected claims make payments to plans with higher than expected claims;
  • Reinsurance, which essentially insures health plan issuers when a covered individual’s medical costs exceed a set dollar amount and;
  • Risk adjustment, which like risk corridors also levels the field among health plan issuers by taking money from plan issuers with lower-risk enrollees and transferring it to plan issuers with higher-risk enrollees.

The first safety net, risk corridors, developed a huge hole out of the box and faces an uncertain future. The federal government announced this year that due to federal budget cuts in the program and higher than expected claims, health plan issuers would receive just 12.6 percent of what they requested for plan year 2014 claims experience.

Come plan year 2017, both risk corridors and the reinsurance programs expire, leaving only one safety net intact: risk adjustment. By placing expiration dates on two of the programs, the Affordable Care Act implies the exchange marketplace is expected to have achieved a degree of financial stability after three years of operations. UnitedHealth Group’s announcement suggests the company isn’t so confident. That said, it could opt to remain in more populous states such as California where there are more “covered lives” in the exchange marketplace. With a greater number of enrollees, the insurance principle works to naturally spread the risk of losses and is less dependent on the premium stabilization programs to keep the market financially viable.

Meanwhile, Aetna and Anthem reacted to the UnitedHealth development by emphasizing their commitment to the exchanges. Anthem is “continuing our dialogue with policymakers and regulators regarding how we can improve the stability of the individual market,” Chief Executive Officer Joseph Swedish said in a statement. Aetna has slightly pared back the number of state exchanges that it will offer plans in 2016 (15 versus 17), according to this Forbes item by Bruce Japsen.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Risk corridor element falls short as exchange QHP premium stabilization mechanism

October 16th, 2015 Comments off

Insurers can now expect to receive only 12.6% of 2014 risk corridor receivables in 2015, with the remainder to be potentially funded in future years. Last week’s announcement validates prior concerns regarding a 2014 risk corridor funding shortfall because of Cromnibus and higher-than-expected 2014 claim costs. This shortfall occurred despite two earlier injections of additional transitional reinsurance program recoveries into the Patient Protection and Affordable Care Act of 2010 (ACA) individual market.The shortfall will have a significant negative financial impact on insurers who find themselves in a risk corridor receivables position, not only for the 2014 benefit year but also possibly for 2015 and 2016. A 2014 funding shortfall puts the collectability of 2015 and 2016 payouts in increased jeopardy—2014 receivables that were not paid in 2015 will be first in line to receive payments in later years if funds are available.

Source: Headwinds cause 2014 risk corridor funding shortfall – Milliman Insight

Risk corridors — one of three elements of the Patient Protection and Affordable Care Act’s Premium Stabilization Programs designed to help ward off steep rate increases for plans sold on state health benefit exchanges — has proven problematic and is unlikely to significantly contribute to reducing rate volatility among exchange Qualified Health Plans (QHPs).

That’s the upshot of this Milliman analysis of the risk corridors component — a short lived financial mechanism that expires at the end of 2016. Risk corridors are designed to level claims experience among health plans offered on state health benefit exchanges. Plans that suffered greater than expected losses are partially compensated for them — and thus reducing their need to sharply boost premium rates — while those paying out less than expected transfer funds to plans with worse experience. While risk corridors have not yet expired and have another year of life, Milliman’s Scott Katterman offers a detailed post mortem of this troubled premium stabilization program component.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health Insurance Companies Seek Big Rate Increases for 2016 – The New York Times

July 4th, 2015 Comments off

WASHINGTON — Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.

Source: Health Insurance Companies Seek Big Rate Increases for 2016 – The New York Times

Large annual premium rate increases at this double digit level prompted the enactment of the Patient Protection and Affordable Care Act in 2010 when it became clear the individual health insurance market segment had entered an unsustainable death spiral. Sharp premium hikes ensued because adverse selection trashed the insurers’ risk pools, making them actuarially unsustainable. The Affordable Care Act attempts to restore the pooling function by putting everyone into statewide risk pools and eliminating medical underwriting to bring more people into the pool.

What’s striking here is the Affordable Care Act anticipated those who lacked medical insurance before the law’s major individual health insurance market reforms took effect in 2014 might have poorer health status and use more medical services. Hence, it contains premium stabilization provisions designed to prevent the kinds of steep rate increases spotlighted in by The Times. That raises questions as to the effectiveness of these provisions.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Double digit individual plan premium hikes seen for 2015

April 9th, 2014 Comments off

A senior executive of WellPoint predicts plan year 2015 premiums in the individual market could go up by double digits in some areas of the United States.

Larry Levitt, senior vice president at the Kaiser Family Foundation, predicts 2015 premiums could rise by 10 percent, based on a  5 to 6 percent medical services cost trend plus the effect of a reduction in payments to plan issuers under the Patient Protection and Affordable Care Act’s Premium Stabilization Programs to $6 billion in 2015.

via Will Premium Spikes Cause Another Round of Obamacare Bashing? – NationalJournal.com.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk Corridors | The Henry J. Kaiser Family Foundation

January 21st, 2014 Comments off
Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk Corridors | The Henry J. Kaiser Family Foundation

The Kaiser Family Foundation produced this excellent primer on the Patient Protection and Affordable Care Act’s Premium Stabilization Programs. Working together, these mechanisms are intended to smooth the transition for health plan issuers subject to the Affordable Care Act’s new marketplace rules that took effect this year.

The individual market has temporary shock absorbers for plan years 2014-16 while both individual and small group plans benefit from an ongoing risk adjustment mechanism designed to level the risk burden among plan issuers to ensure they don’t take on more or less than their share of higher cost insureds.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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