Should ACA risk adjustment be more like Medicare Advantage?

When Aetna decided last week to drop 70% of its health plans in the Affordable Care Act markets, CEO Mark Bertolini publicly blamed the exits on the poor risk pool, as well as “the current inadequate risk-adjustment mechanism.”

The federal government's decision to block Aetna's acquisition of Humana also factored heavily into Aetna's exchange exodus, as Bertolini warned in a July letter that was obtained by the Huffington Post.

The risk pools and merger politics have captured the attention of policymakers, but the digs at the ACA's permanent risk-adjustment program also reveal a simmering area of universal discontent among insurers. Not-for-profit co-ops and other small health plans have been the leading critics of risk adjustment. Now, Aetna is right behind them.

Ana Gupte, an analyst at investment bank Leerink Partners, recently met with top Aetna executives and said they plan to lobby the federal government to alter the ACA's risk adjustment to more closely resemble what is used in Medicare Advantage, the private HMO version of traditional Medicare. Some people in Washington even think Congress may propose legislation to make that change.

But moving the ACA risk adjustment to a Medicare Advantage model would be incredibly difficult, mostly because it would require new taxpayer money for a politically contentious law.

That “seems like a big lift in the present legislative climate,” said Michael Adelberg, a former CMS official who now works at FaegreBD Consulting. Many experts and health plan executives believe CMS officials instead should continue making incremental changes to risk adjustment under their statutory authority.

The two risk-adjustment systems work in very different ways but are both intended to reduce the incentive for insurers to cherry-pick the healthiest members. Under the ACA, insurers peg their members with risk scores based on the services and conditions that are coded in hospitals and doctor offices. Plans that have healthier people with lower risk scores pay into a pool in each state, and plans with sicker members get to take money—giving the program a zero-sum outcome.

“It's not meant to set the level of payment. It's meant to be redistributive,” said Sean Creighton, who used to work at CMS and now serves as vice president of risk adjustment at analytics firm Verisk Health.

In Medicare Advantage, insurers similarly evaluate the health of their members and build risk scores based on medical coding, but the Medicare trust fund covers the cost. There's no contributing pool of money to help out insurers with sicker enrollees. Each company codes its own members, and each receives payments adjusted to reflect the risk scores.

If the exchanges moved to that model, it would require Congress to approve a new pot of funding for the health insurance industry. Even if legislation were proposed, it is unlikely Republicans would support it given their heated opposition to the ACA.

“I predict numbers. I don't predict politics,” said John Bertko, chief actuary of the Covered California exchange. But, he said, it's prudent thinking “to make do with what we have.”

Politics aside, critics have raised concerns about the structure of Medicare Advantage's risk adjustment. Several government audits have found instances of upcoding, a process of inflating diagnoses and risk scores to obtain higher payments. Medicare Advantage also uses a prospective risk-adjustment system—meaning plans use prior data to predict future risk—whereas ACA plans operate on a concurrent or same-year schedule. Actuaries believe the concurrent model is more accurate.

“That's a much more complicated and time-consuming fix,” Thomas Policelli, CEO of Minuteman Health, the co-op in Massachusetts, said of moving to Medicare Advantage risk adjustment. “I think there's so much that can and needs to be done in the immediate term.”

Policelli and other co-op leaders have advocated for other changes that eliminate the “estimation bias” in the risk-adjustment model. They argue the model understates risk scores for the healthy and overstates them for the chronically ill. “Your new members are going to be scored as healthier than they are because of the lack of data,” Policelli said.

The only ACA plans that have a “half-decent argument” over risk adjustment are the co-ops and new start-ups since they are new to coding risk scores, Bertko said. If insurers don't do their own data analysis or don't have a third party looking at claims and member patterns, he said, “it's your own fricking fault.”