Two of the Affordable Care Act's programs meant to compensate health insurers that receive higher than average claims are working just as they should, according to a new study.
Of the insurers that sold plans on the individual market in 2014 and 2015, those that received the highest-cost claims also got the biggest payouts from the healthcare law's risk-adjustment and reinsurance programs, a study published last week in the journal Health Affairs showed.
In the individual market, some plans get lucky and enroll healthier-than-average members, while others tend to attract sicker, costlier ones. The study showed that risk adjustment and reinsurance “help level the playing field so insurers can focus on other aspects of their business not related to risk selection,” said Paul Jacobs, the study's lead author and a service fellow at HHS' Agency for Healthcare Research and Quality.
Under the ACA, health insurers can no longer charge plan members a higher price for being sick. The law also prohibits insurers from denying coverage to someone with a pre-existing condition. That means insurers are required to sell sick people health policies that will leave insurers on the hook for big health bills beyond a policyholder's deductible. That's a big incentive for an insurer to avoid enrolling those sick members.
To reduce that incentive and keep premiums down, the ACA created premium-stabilization programs: risk adjustment and reinsurance. The permanent risk-adjustment program is meant to discourage insurers from cherry-picking healthy plan members over sicker, riskier ones in the individual and small-group insurance markets.
It works by collecting payments from plans with healthier-than-average members and distributing that money to plans saddled with high-cost members. The program is based on a patient's risk score, similar to what's used in Medicare Advantage, except risk adjustment is a zero-sum game under the ACA.
The three-year reinsurance program, which ended in 2016, protects insurers from costly claims. Insurers pay into the reinsurance pool, and those funds are then paid to health plans that had members with extremely high medical claims. The federal government made $7.8 billion in reinsurance payments to insurers for 2015.