Tag Archive: risk adjustment

Improving primary/urgent care consumer experience as a means of risk selection in individual market

The Patient Protection and Affordable Care Act’s reforms of the individual health insurance market are intended to create a large, risk diversified pool with the individual mandate and prohibition on health plan medical underwriting. A related goal is to enhance competition among health plan issuers based on value and price rather than risk selection – selecting for populations more likely to have lower medical utilization. In addition, the Affordable Care Act’s risk adjustment mechanism — 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 – is designed to disincentive selecting members who tend toward lower medical utilization.

However, as this Money item suggests, market forces may be in play that could work against shifting the market away from risk selection as a means of competition. How? By creating a health plan bundled with a consumer friendly front end primary/urgent care clinic that targets Millennials and young families. These plans – Zoom and UnitedHealth’s Harken Health unit — compete by offering a superior primary and urgent care consumer experience. Along with convenience and transparency and more personalized care and healthy lifestyle support. Since their target demographic is less likely to be suffering from costly chronic health conditions or require hospitalization, the overall risk profile of their plan memberships will likely be superior to those of other health plan issuers.

 


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

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. 

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

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. 

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

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. 

2014 premiums for California exchange plans lower than forecast

At first glance, premium increases among health plan issuers set to participate in California’s health benefit exchange individual marketplace in 2014 are not coming in nearly as high as forecast in an actuarial study issued in March.  The Milliman study commissioned by the exchange, Covered California, projected that market changes due to Patient Protection and Affordable Care Act requirements would increase 2014 premiums by 14 percent on average.  Consumers buying richer coverage due to the Affordable Care Act’s essential health benefits requirement would add 4.8 percent and higher average actuarial value for existing covered services another 11.5 percent.

Instead of a total increase of more than 30 percent based on these numbers, average 2014 premium rates for one of the large participating plan issuers, Blue Shield of California, will rise 13 percent for plan year 2014.  While still in the double digits, it’s not that much above the underlying annual nine percent rate increase “trend” driven by increases in provider reimbursement, increases in utilization due to new procedures and technology and higher prescription utilization and costs per the Milliman projection.

Several factors are likely keeping rate increases lower than expected in California, whose exchange marketplace is being closely watched as a harbinger of where individual health insurance rates may be headed next year in other state exchange markets.

  • Rates are for 2014 only under the one year term of the contract between Covered California and participating plan issuers.  That gives the 13 plan issuers initially participating in the marketplace time to determine if their rates are adequate and to assess initial enrollment numbers.
  • Covered California is one of a handful of state exchanges using an “active purchaser” model in which it negotiates terms and conditions for participation in its exchange marketplace, the largest in the nation with potentially more than an estimated 2 million enrollees signing up for individual plans in 2014.  That provides the exchange with a degree of bargaining power with participating plan issuers, who in turn responded by narrowing their provider networks in order to hold down costs.
  • Increased plan issuer confidence in the Affordable Care Act’s reinsurance and risk adjustment provisions designed to mitigate high claims costs from sicker individuals using more costly medical services.
  • Last but not least, politics.  Had rates for exchange plans come in as high as actuarially predicted, taxpayers would have had to absorb a larger amount of the premium increases for those earning 400 percent or less or federal poverty guidelines in the form of premium subsidies.  Those earning more than 400 percent of poverty would have experienced substantial “rate shock” since they are ineligible for the subsidies — advance personal income tax credits to offset premiums for coverage purchased through state exchanges — creating pressure for more regulatory reforms.  A measure that will appear on the November 2014 ballot — after the 2014 rates will have been in effect for more than 10 months — will ask California voters if health insurance rates should be subject to prior regulator approval.
 


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. 

PPACA’s risk adjustment mechanisms: Sharing the burden of chronic disease

The Sacramento-based Center for Health Improvement (CHI) recently hosted an informative seminar on risk adjustment components of the Patient Protection and Affordable Care Act to help health plans and insurers manage and balance medical risk once they must begin accepting all applicants regardless of pre-existing medical conditions starting Jan. 1, 2014.  (Background and a webcast of the seminar are available at the CHI webpage.)

Medical underwriting that can make obtaining affordable coverage difficult for many prospective insureds in the individual and small group market segments ends on that date. The framers of the PPACA put in place these risk adjustment mechanisms to ensure balance and stability in the individual and small group insurance marketplace when it arrives.  They are intended to avoid adverse selection — when medical claims costs and premiums rise in a self-reinforcing manner and threaten insurers’ ability to spread risk among healthier people, threatening the solvency of the insurance pool — as well as cherry picking.  The latter term refers to insurer risk selection aimed at weeding out people who could incur high medical bills and attracting healthier insureds less likely to file costly claims.

The PPACA provides three risk adjustment techniques for health plans and insurers.  Two are of limited 3-year duration, intended to ease the transition from medical underwriting to community-based rating during the period of Jan. 1, 2014 to Jan. 1, 2017.  They include reinsurance designed to help cover the cost of actuarially unexpected, very high cost claims that could lead to overall higher premiums, and risk corridors.  Risk corridors are an equalizing mechanism that subsidizes insurers incurring disproportionally high claims costs and inversely, surcharges those that incur lower than expected claims costs.

The ongoing mainstay risk adjustment mechanism — risk adjustment — also employs a similar redistribution mechanism for insurers and health plans that shifts funds from insurers and plans enrolling low risk insureds to those with more risky, sicker insureds.  Risk adjustment employs dollar weighted risk differentials assigned to each insured that take into account that person’s likely medical treatment costs going forward based on their medical diagnoses and conditions.

The American Academy of Actuaries has prepared an excellent primer on the three risk adjustment components of the PPACA.

Panelist John Bertko of the Centers for Medicare & Medicaid Services’ (CMS) and director of special initiatives and pricing for the center for Consumer Information and Insurance Oversight, summed up a key goal of the PPACA’s risk adjustment mechanisms: a means of sharing the growing burden of chronic disease across payers come 2014.  It remains to be seen just how great that burden will be in 2014 as the cost of treating chronic, complex diseases such as diabetes and heart disease in an aging population continues to trend upward.  While the PPACA’s risk adjustment mechanisms can help allocate these costs across payers, the overall increased cost will ultimately have to be borne by everyone covered by health plans and insurers in the form of higher premiums.

 


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. 

%d bloggers like this: