Small, regional health insurers and upstart co-op plans again incurred large charges under the Affordable Care Act's risk-adjustment program, according to new data the CMS released Thursday.
Calendar year 2015 marks the second year of risk adjustment, and many smaller insurers have had to pay into the program both years.
The data also show payouts for the ACA's reinsurance program. For ACA plans sold in 2015, the reinsurance payments total $7.8 billion. The temporary reinsurance program, which expires at the end of this year, protects health insurers against costly claims.
The permanent risk-adjustment program serves as a mechanism to prevent insurers from cherry-picking the healthiest members by spreading the insurance risk of all ACA exchange enrollees. Companies that cover sicker, riskier people with complex health conditions receive money from companies that have generally healthier members. The program is based on a patient's risk score, similar to what's used in Medicare Advantage, except under the ACA, risk adjustment is a zero-sum game.
However, some insurers have argued the risk-adjustment formula favors bigger payers with more claims experience and leaves out important prescription drug data. Smaller companies that sell on the ACA's exchanges have said they don't have as much claims data, and therefore their membership base looks healthier than it actually is.
The CMS has vowed to make changes, but health plans argue the changes need to be made immediately, with some saying they may have to shut their doors if forced to pay under the 2015 risk-adjustment totals. The CMS said 817 health insurers participated in risk adjustment for 2015.
Evergreen Health Cooperative, the ACA's not-for-profit co-op based in Maryland, sued the federal government over its risk-adjustment policies. For 2015, Evergreen owes $24.2 million under risk adjustment for its individual and small-group health plans.
Many of the other 10 co-ops that still stand have large risk-adjustment obligations as well. Land of Lincoln Health in Illinois owes $31.8 million, New Mexico Health Connections owes $14.6 million and HealthyCT in Connecticut owes $13.4 million.
Oscar Insurance Corp., the tech-based darling of the insurance startup world, will pay $33 million into the risk-adjustment pool for 2015, based on the plans it sold in New Jersey and New York.
In many states, large legacy carriers such as Anthem, Aetna and Cigna Corp. are on the receiving end of risk-adjustment dollars. Anthem's Connecticut subsidiary, for instance, is projected to earn almost $51 million under risk adjustment.
However, not all large plans benefited. Kaiser Permanente has to pay $169 million under risk adjustment for its ACA plans in California. But the not-for-profit integrated system also is set to receive almost $194 million in reinsurance payments, giving Kaiser a net gain for the year on those two programs in California.
Blue Shield of California, a not-for-profit plan that has been heavily criticized over its tax-exempt status and large reserves, received almost $484 million in reinsurance and risk adjustment payouts. Three-quarters of that amount, or about $363 million, came from the reinsurance program.
Michael Johnson, a former Blue Shield of California employee who has since become a whistle-blower, said the insurer also has shortchanged its consumers $34 million in unpaid rebates. Blue Shield has said its practices have been appropriate.
The CMS defended both programs and said it is helping plans weather the early years of the ACA's marketplaces.
“These correlations confirm that risk adjustment is working as intended to transfer funds from issuers with low actuarial risk to plans with high actuarial risk,” the CMS said in its report. “Likewise, issuers with higher claims costs also received larger reinsurance transfers.”
After risk adjustment and reinsurance, the third of the so-called “3 Rs” is the risk-corridor program, which is mired in political knife-throwing and lawsuits. The latest CMS report did not address the risk-corridor program, in which insurers currently are only receiving about 13 cents on the dollar.
