The Marketplace Risk Adjustment Program: Promoting Access, Quality, and Choice for Consumers
By Kevin Counihan, CEO of the Health Insurance Marketplaces
Dr. Patrick Conway, CMS Acting Principal Deputy Administrator
This week, CMS brings together health care stakeholders and experts to discuss an esoteric sounding, yet important, topic: the individual and small group market risk adjustment programs created by the Affordable Care Act (ACA). Risk adjustment is critical to making the ACA’s better-known market reforms work well for insurers and consumers. By reducing incentives for issuers to try to design products that attract a healthy risk pool, risk adjustment lets issuers compete on quality, price, and products that meet the needs of all consumers, protecting consumers’ access to a range of robust options.
Risk adjustment is a longstanding and important part of the Medicare Advantage and Medicare Prescription Drug Programs and has proven effective in making these programs work well for seniors. Likewise, the ACA’s risk adjustment program is already delivering on its promise of affordable coverage that meets consumers’ needs. But, there is always room for improvement.
That’s why CMS recently released a white paper (https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/RA-March-31-White-Paper-032416.pdf) that evaluates our experience with the risk adjustment formula to date and analyzes possible changes. The white paper provides data and analysis about how the program has operated in the past, so that information, best practices, and ideas for improvement can be shared. And that’s why we’re bringing a broad range of stakeholders together to discuss these issues.
As we consider comments and feedback in our meeting on Thursday, March 31, on the future of the ACA’s risk adjustment program, we will keep in mind key principles to simultaneously make improvements while staying true to the goals of the program.
Promoting Access, Quality, and Choice for Consumers with Diverse Health Care Needs
Before the ACA, Americans with pre-existing medical conditions were often left out of the health insurance market. Now, because of the ACA, Americans with pre-existing condition can no longer be charged more or denied coverage just because they’ve been sick.
This means that insurance companies have had to adapt to a new way of working. Instead of “medical underwriting” – a practice where an insurance company requires you to disclose your health status to determine whether to offer you coverage, at what price, and with what exclusions – insurance companies must offer you coverage regardless of your health status and can’t charge you more for being sick.
Risk adjustment is an essential part of making the individual and small group markets work well under a system where everyone, including people with pre-existing conditions, can buy high-quality coverage.
Through risk adjustment, insurance companies with sicker-than-average enrollees receive payments from other health insurance companies with healthier-than-average enrollees. That means that issuers make or lose money based on the characteristics of the products they offer, rather than how sick or healthy their enrollees are. This, in turn, lets issuers compete in the market by designing products that meet the needs of all consumers, rather than designing products to be unattractive to those who are sick.
For example, thanks to risk adjustment, it can make financial sense for issuers to develop specialized care management programs to meet the needs of people with chronic or other conditions. If such plans attract more expensive enrollees, issuers know they will be compensated by risk adjustment.
We are already seeing some Marketplace plans innovate in this area to meet the needs of consumers with challenging health issues, for example by offering plans that focus on diabetes management and other chronic illnesses. Risk adjustment may also help new or smaller businesses participate in the market without fear of attracting a large number of sick enrollees in any particular year.
Assessing the Marketplace Risk Adjustment Program
The risk adjustment methodology was designed with input from trade associations, insurance companies, actuaries, clinicians, economists, and other members of the public. It was implemented through rulemaking with a public notice and comment period. CMS worked closely with health insurance companies to ensure that the risk adjustment program uses the best available data. And all insurance companies – large and small, new or established – play by the same rules.
The first finding of the CMS white paper is that the risk adjustment program has largely worked as intended to date. For the 2014 benefit year, the formula successfully transferred $4.6 billion from issuers with healthier enrollees to issuers with sicker enrollees. Our data and an outside independent analysis (http://health.oliverwyman.com/maximize-value/2016/02/a_story_in_four_char.html) found that the main determinant of whether an issuer received a payment is the relative health of their enrollees, which is a sign of health for the program.
These analyses also show that the formula hasn’t favored large plans over small plans, or the reverse, indicating no bias by the size of the plan or insurance company. We expect performance of the program to improve with experience. Accurate risk adjustment payments depend on issuers accurately collecting, managing, and submitting data on their population’s health. While the ACA-compliant individual and small group markets are still relatively new, these core capabilities appear to have worked well in 2014 and we expect will contribute to successful health plan operation even in a market without risk adjustment.
We have recently made and announced a number of changes to risk adjustment. In response to issuers’ requests for earlier information, we distributed risk adjustment data reports to insurance companies earlier this month to help them with setting their 2017 rates. These early reports rely on the information insurance companies report to CMS, and so they are only available in markets where sufficient issuers had submitted their data, and they are only as accurate as the data provided. This is why it is important that the companies focus on data management to fully and accurately report their experience and try to do so as early in the year as feasible.
We have also made some other adjustments to the methodology for the 2017 plan year including using more recent data, updating medical and drug trends, and incorporating preventive services into companies’ risk adjustment calculations.
As we contemplate making additional changes, we want to get more input from the public. And that’s the purpose of the public meeting on risk adjustment. As outlined in more detail in the white paper, some of the ideas we want to discuss include: whether and how to account for partial year enrollment in the model; whether and how to develop a prescription drug model, accounting for newer high-cost medications; whether and how to pool high risk enrollees; and whether and how to recalibrate the model based on data for the individual and small group populations, instead of a commercial dataset drawn from the employer market.
We look forwarding to hearing feedback from the public about these and other possible changes to the risk adjustment program.
We will continue to listen and learn to make sure we operate this vital program to maximum effect. We will take feedback and suggestions through April 22, 2016, and will keep the public informed as we consider proposals to change and improve the risk adjustment program in 2018 to serve the goals of providing affordable coverage and better care for millions of Americans.