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.
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.
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