Small insurers rack up large charges while Blues benefit under ACA's risk-adjustment program

Story​ updated​ July​ 7,​ 2016.

Small health insurers and the few remaining co-op plans were again sacked with large charges under the Affordable Care Act's risk-adjustment program, according to the CMS.

The CMS released data late Friday for the third year of the ACA's controversial risk-adjustment program, which shuffles money from plans with healthier enrollees to those with sicker ones. The agency also released the 2016 payments under the temporary reinsurance program, which protects health insurers against costly claims.

For ACA plans sold in 2016, the reinsurance payments total $4 billion. The CMS said 445 insurers will receive reinsurance payments.

The permanent risk-adjustment program is meant to keep ACA insurers from cherry-picking healthier plan members over sicker, costlier ones. It collects payments from plans with healthier than average members and distributes that money to plans saddled with high-cost members. The zero-sum program is based on a patient's risk score, which factors in demographic information and health conditions. The CMS said 709 insurers participated in the risk-adjustment program.

The formula used to calculate payments in the risk-adjustment program has been criticized for unfairly favoring larger plans with more claims experience. 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 is.

Several small plans and co-ops formed under the ACA have sued over the risk-adjustment formula. Evergreen Health co-op in Maryland, for instance, sued in June 2016 to block the federal government from requiring it to pay millions in risk-adjustment charges. Co-ops New Mexico Health Connections and Minuteman Health of Massachusetts filed similar suits last year.

Nevertheless, for calendar year 2016, the CMS said Evergreen must pay $9.4 million in risk-adjustment payments, though it will receive $2.5 million from the reinsurance program. Minuteman will have to pay $25.4 million in risk-adjustment payments, and New Mexico Health Connections will pay $8.9 million.

Illinois' now-shuttered co-op Land of Lincoln Health owes $21.7 million in risk-adjustment payments, but is set to receive $9.2 million in reinsurance payments. Healthy CT, one of the handful of co-ops still standing, owes $8 million in risk-adjustment payments.

Several large health plans also lost big money under the programs. Kaiser Foundation Health Plan must pay $437.8 million in risk-adjustment payments for its ACA individual and small-group plans in California. It's set to receive $99.5 million in reinsurance payments. New Hyde Park, N.Y.-based system Northwell Health's insurance company must pay $131.8 million in risk-adjustment payments for its New York plans. It will only receive $6.3 million in reinsurance payments.

The biggest winners were Blue Cross and Blue Shield-affiliated plans. Under the ACA, sicker patients flocked to the Blues' well-known brand, hence the companies' higher risk-adjustment payments.

Blue Cross and Blue Shield of Florida will rake in $615.7 million in risk-adjustment and reinsurance payments combined—the largest amount among participating insurers. Blue Shield of California will receive a whopping $572 million, Anthem Blue Cross of California will receive $476.3 million, and Blue Cross and Blue Shield of North Carolina will get $264.6 million in risk-adjustment and reinsurance payments.

Responding to insurers' demands, the CMS has made changes to the risk-adjustment formula for 2017, including accounting for people who enroll for only a portion of the year because of major life changes. In 2018, the formula will factor in prescription drug data for the costs of covering enrollees.

Still, the CMS said the risk-adjustment and reinsurance programs are working as they're supposed to. Insurers with high paid claims were more likely to receive risk-adjustment payments, while those with relatively low paid claims were more likely to pay in. The CMS noted that insurers in the lowest quartile of claims costs on average were assessed a risk-adjustment charge of 18% of total collected premiums, while those in the highest quartile of claims costs received a risk-adjustment payment of about 27% of their total premiums. Insurers with higher claims costs also received larger reinsurance payments, the CMS said.

The CMS also noted that risk scores were stable in the individual market and decreased in the small group market in 2016. Many observers had predicted that risk scores would go up, because health plans have said the market is becoming sicker overall.

An​ edited​ version​ of​ this​ story​ appears​ in​ Modern​ Healthcare's​ July​ 10​ print​ edition.