Changes Weighed for ACA Program Covering Sicker Patients

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By Sara Hansard

March 24 — Possible changes to the Affordable Care Act's program for protecting insurers that cover sicker populations were laid out March 24 in a discussion paper issued by the HHS.

Among the ideas covered were how to include high-risk patients in risk adjustment payments made by plans that have healthier enrollees, as well as including prescription drug information in the formula used to calculate the payments. The Centers for Medicare & Medicaid Services is holding a meeting at its headquarters in Baltimore March 31 to discuss changes that would start in 2018.

Small plans, fast-growing issuers, new market entrants and nonprofit CO-OPs created with government funding under the ACA were hard hit in 2014 by big payments they were forced to make under the risk adjustment program, and some of them have asked for payment caps or exemptions for at least the first few years of the program . Blue Cross Blue Shield plans, which generally have benefited from the program, argue that it is necessary to make sure insurers have an incentive to cover people with pre-existing medical conditions.

`Key Themes' for 2014

Under the risk adjustment program, funds are transferred from plans with healthier and lower-cost enrollees to plans with less healthy and high-cost enrollees. All individual and small group plans that took effect after the ACA was enacted in 2010, called nongrandfathered plans, must participate in the program, including those sold outside of the ACA marketplaces.

Of the 468 issuers in the eligible individual market in 2014, 200 issuers, 43 percent, owed charges, while 268 issuers, 57 percent, received payments, the March 24 discussion paper said. It identified three “key themes” for 2014:

  • Issuers with low paid claims per enrollee had low risk scores, meaning they were more likely to be liable for payments, while those with high paid claims tended to have high risk scores.
  • An issuer's size didn't determine if they received a risk adjustment payment or charge. However, risk adjustment transfer as a share of issuer premiums varied much less for larger issuers than for smaller ones.
  • Issuers with greater than average proportions of enrollees in gold and platinum plans—which cover the most medical costs—were more likely to receive payments and issuers with higher proportions of members in bronze plans that cover the least medical costs were more likely to owe charges.

    CMS's Investigation

    The discussion paper said the CMS is “investigating whether the risk adjustment methodology appropriately addresses plan differences.” The transfer equation doesn't address network differences, plan efficiency or effective care coordination or disease management, it said.

    “We are exploring a number of ways of addressing such plan differences in our methodology,” including by modifying the risk adjustment equation using a plan’s own premium, the dscussion paper said. That appeared to be a reference to the proposal made by some of the CO-OPs and other plans to cap risk adjustment payments based on a share of their premiums, at least in the initial years of the program. But the CMS said there could be “unintended incentives to raise or lower premiums in order to take advantage of this effect.”

    The discussion paper said that “in general, the HHS risk adjustment methodology is working as intended,” supporting market stability by pooling risk and transferring funds from low-risk plans to high-risk plans.

    Avalere Report

    Also on March 24 health-care consulting firm Avalere released a report suggesting changes to the risk adjustment program.

    ACA individual marketplace enrollees are older, lower-income and have higher health needs than people in the large group employer market, on which the risk adjustment model was based, Avalere found. Further, 30 percent of ACA marketplace enrollees were enrolled for less than a year and their costs are 18 percent higher than full-year enrollees, Avalere said.

    While the CMS uses 127 health conditions to predict the risk of enrollees, only about 19 percent of individuals in the market ended up having one of those conditions, and the risk adjustment program may not be compensating plans for the actual risk of individuals enrolled, Avalere said. The exchange population is different from the Medicare model on which the CMS is basing its risk adjustment model, Tom Kornfield, vice president of Avalere, told Bloomberg BNA March 24.

    “They’ve taken some good steps with the prescription drug information they’re talking about including,” Kornfield said. “That’s a positive sign.”

    To contact the reporter on this story: Sara Hansard in Washington at

    To contact the editor responsible for this story: Janey Cohen at