CMS Report Finds ACA Reinsurance, Risk Adjustment Programs Stable

According to a recently released report from the Centers for Medicare and Medicaid Services (CMS), the Affordable Care Act’s risk adjustment and reinsurance programs are working as intended—contradicting popular claims that the health care law is failing.

“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 within a market within a state and supporting them in offering products that serve all types of consumers,” the CMS wrote.

According to the report, insurers with higher cost patient claims were more likely to receive a reinsurance reimbursement or risk adjustment payment. Conversely, insurers with lower cost patient claims were more likely to pay into reinsurance and risk adjustment programs.

Furthermore, CMS found that in 2016, risk adjustment transfers were similar to  2014 and 2015.

“In the 2014 and 2015 benefit years, the absolute value of risk adjustment transfers averaged 10% of premiums in the individual market and 6% of premiums in the small group market,” the CMS wrote. “In the 2016 benefit year, the absolute value of risk adjustment transfers as a percent of premium increased to 11% of premiums in the individual market and stayed consistent in the small group at 6% of premiums.”

CMS also found that the amount of states provided risk prediction scores increased from 20 in 2015 to 48 in 2016, and the accuracy of these scores increased significantly.

“In addition to the significant increase in the number of issuers and states eligible for interim risk scores for the 2016 benefit year, there was also marked improvement in predictability of transfers by risk score quartile as compared with 2015 in both markets,” the CMS wrote. “This increased predictability associated with interim risk scores reflects higher quality data earlier in the data submission process and provides more reliable estimates prior to final data submission for issuers’ rate setting and financial forecasts.”

The report noted that although risk scores were higher for 2016 compared to 2014, the factors causing the higher risk scores were not related to an actual increase of risk on the marketplace. These factors included longer periods of enrollment, higher total claims volume, and improved collection of risk data.

“All of these factors would cause an increase in average risk score (the measure of actuarial risk) without representing an increase in the actuarial risk of the membership,” the CMS wrote. “Despite these factors, risk scores were stable in the individual market and decreased by 4% in the small group market.”

—David Costill