Risk Transfer On Steroids – Adverse Selection Can Be A Plan’s Sponsor’s Best Friend

By Bill Rusteberg

There appears to be a growing belief Plan Sponsors may be enabled to devise a plan of benefits that incorporate heretofore widely thought to be prohibited enticements to transfer high risk individuals off employer sponsored group plan coverage onto alternate plans such as individual health insurance coverage, Medicaid and Medicare.

Purveyors of these schemes point to the ACA as Loop Hole Kingdom allowing such practices although not memorialized specifically to any perceptional degree. The ACA was passed in haste in a rush to get it through without too much scrutiny. “We have to pass the bill before you can see what’s in it” should have been “We have to pass the bill before we know what’s in it!”

The ACA birthed unintended consequences such as the Minimum Loss Ratio mandate, driving health care costs and insurance company profits through the roof.  ACA fueled adverse selection opportunities is another.

We’ve asked three lawyers for their opinion on whether these strategies are legal. None opined it was illegal per se. One emphatically opined it was legal, and one said caution was the order of the day – “Bill, to be honest with you, if the Plan buys off on it, and the TPA buys off on it then I would do it.”

Under this risk transfer scheme plan members are given three choices:

☐ Comprehensive ACA compliant Major Medical Plan

  • ACA Compliant – Satisfies Employer Mandate

☐ Plan designed for members who have other coverage. That could be Medicare or other group insurance.

  • 100% paid by plan. Free to Employee.
  • Reimburses Other Coverage’s Deductible, Co-Insurance & Other Out-of-Pocket Expenses

☐ Plan reimburses high dollar claimants for premiums and patient share who are terminated from the group plan as per language in the Plan Document and obtain individual health insurance coverage. “Plan may terminate a plan member’s coverage at any time if the Plan Sponsor determines a member’s termination is in the best financial interest of the plan member.”

Some call this patient dumping while others call it smart risk management. Others point to such tactics as simply a risk transfer to taxpayers. Six Pak Joe doesn’t really care about any of this. All he knows is he’s paying too much for too little.

With employer’s financial backs to the wall these days, it’s likely more will adopt similar risk transfer strategies. Individual Coverage Health Reimbursement Account (ICHRA) Plans is one example. No one questions the legality of ICHRA’s.


Per ACA we can do this legally on a monthly basis for tribes.  It is counterintuitive, but it works.  It is called sponsorship, the tribe escorts the identified to the exchange and the tribe pays the premium.


Awesome post, Bill! I would seriously push this with some of your groups/TPA’s  and see they will buy into it… Hospital’s have a ton of lost revenue to make up and if I was a CFO, I would want to be AHEAD of the curve (i.e. shift the risk elsewhere) rather than be staring down the gun barrel of a $654,000 claim… .

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