Tag Archive: risk corridors

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. 

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

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

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. 

%d bloggers like this: