Is Government Mandated Risk Sharing Fair?


Government mandated risk sharing among insurers to cover pre-existing condition losses has merit. But is it fair?  

Contributed by D.K. Pruitt

Risk adjustment burden falls on smaller insurers

In the individual market, issuers in the lowest quartile of claims cost were assessed 12% of collected premiums.

Susan Morse, Associate Editor

Risk adjustment payments favor larger insurers more than smaller payers, according to figures released by the Centers for Medicare and Medicaid Services on Thursday.

Risk adjustment payments correlate to the number of paid claims, CMS said.

Insurers with a high number of paid claims amounts are more likely to be compensated by risk adjustment payments, while issuers with relatively low paid claims amounts are more likely to be assessed charges, CMS said.

In the second year of risk adjustment payments in calendar year 2015, 817 insurers participated, and smaller payers have paid during both years, according to CMS figures.

For example, in the individual market, issuers in the lowest quartile of claims costs, on average, were assessed a risk adjustment charge of approximately 12 percent of total collected premiums.

Conversely, issuers in the highest quartile of claims costs received a risk adjustment payment of about 11 percent of their total premiums.

CMS said these correlations confirm that risk adjustment is working as intended to transfer funds from issuers with low actuarial risk to plans with high actuarial risk. Spreading the risk prevents insurers from excluding the sickest of beneficiaries.

The risk adjustment methodology is based on the premise that premiums should reflect the differences in plan benefits, quality, and efficiency – not the health status of the enrolled population, CMS said.

However, smaller insurers have cried foul saying risk adjustment payments threaten their survival.

The Affordable Care Act cooperative Evergreen Health Cooperative in Maryland, reportedly sued the federal government over its risk-adjustment policies.

[Also: Is a cooperative insurance cliff on the horizon?]

A recent study has shown insurers are suffering losses in the individual market.

[Also: Insurers suffer large losses in individual market, George Mason University report finds]

In the temporary reinsurance program, data shows $7.8 billion in contributions to protect insurers against costly claims.

The $1.7 billion in reinsurance contributions from the 2014 benefit year will be used for reinsurance payments for the 2015 benefit year, CMS said, along with the approximately $5.5 billion in reinsurance contributions for 2015. Another $1 billion is scheduled to by November 15.

For the 2015 benefit year, an estimated $7.8 billion in reinsurance payments will be made to 497 issuers nationwide.

HHS has made available to each issuer of a reinsurance-eligible plan the contributions that are scheduled to be collected by November 15.

HHS is also making a report available to each issuer of a risk adjustment covered plan that includes the issuer’s risk adjustment payment or charge.

Both the transitional reinsurance program and the permanent risk adjustment program are working as intended in compensating plans that enrolled higher-risk individuals, thereby protecting issuers against adverse selection, CMS said.

A total of 839 issuers participated in the reinsurance and risk adjustment programs for the 2015 benefit year.