Leveraging Risk Transfer Through The Federal Risk Adjustment / High Risk Pool Program

Hot Potato Risk Transfer Method

Self-funded health plans have traditionally ceded large and unexpected losses through insurance policies naming the plan sponsor as the insured. Under these policies plan sponsors are reimbursed for losses. Many have now discovered they can duplicate this risk transfer strategy through a more efficient and economical method by naming the plan member as the insured.

Through carefully constructed plan document language high cost plan members become eligible to be placed in a permanent federal risk adjustment program that transfers payments among insurers. Risk exposure is pooled over hundreds of thousands of covered lives.

High-cost risk pool payments are funded by a percent of premium charge (a tax) on all risk adjustment covered plans within the respective national high-cost risk pool.

Self-funded plan sponsors adopting this alternate risk transfer strategy can expect far better underwriting results. Lasers become obsolete.

ICHRA’s take full advantage of the Federal Risk Adjustment / High Risk Pool Program and are becoming more popular among struggling plan sponsors seeking affordable health insurance for their employees.


Summary Report – Permanent Risk Adjustment Transfers

Risk Pooling: How Health Insurance in the Individual Market Works | American Academy of Actuaries