Exchange insurers owe $10.3B in risk-adjustment payments

Marketplace health insurers will pay $10.3 billion under the risk-adjustment program for 2023, the Centers for Medicare and Medicaid Services announced Monday.

While insurers will transfer 11.5% more to other carriers than they did the previous year, payments are 10.4% less as a share of premiums. Blue Cross and Blue Shield companies including Florida Blue and Elevance Health are set to receive large payments, while Aetna, Kaiser Permanente and Oscar Health each owe more than $1 billion, according to analyses of the CMS data by Modern Healthcare and the investment bank Stephens.

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The health insurance exchange risk-adjustment program is designed to spread financial risk among insurers to discourage carriers from cherry-picking healthier customers and encourage them to offer richer benefit packages.

Under this zero-sum system, insurers that cover high-cost, high-risk populations — such as people with chronic conditions — receive payments from competitors with lower-risk memberships. Over time, marketplace insurers have gotten better at aligning the premiums they charge with the costs their policyholders incur.

“The amount of money that's changing hands in risk-adjustment is lower than it once was,” said Matthew Fiedler, senior fellow at the Brookings Institution Center on Health Policy. “That may indicate, for example, that there's less dispersion in plan generosity than there was before, and so there are fewer insurers as a result receiving big payments or making big payments.”

Florida Blue is in line to receive $1.6 billion, Blue Shield of California $1.3 billion and Health Care Service Corp. $1.2 billion, according to the Modern Healthcare analysis. Stephens estimated that those and other nonprofit Blue Cross and Blue Shield carriers will collect a combined $5.1 billion.

Elevance Health, a publicly traded, for-profit insurer that markets Blue Cross and Blue Shield plans in 14 states, will get $107 million. Other highlights include $62.3 million for Molina Healthcare, $32.4 million for Humana and $20.2 million for Centene.

These windfalls could influence decisions insurance companies make about what to sell and how much to charge, Fiedler said. “[The payments] do factor into an insurer’s overall assessment of how it's doing in this market, how profitable it is and how it might want to change its strategy,” he said.

CVS Health subsidiary Aetna faces a $1.4 billion charge, according to the Stephens analysis. That may mean Aetna offered less comprehensive policies and attracted healthier enrollees or that they’re less proficient at coding, Fielder said.

Kaiser Permanente and Oscar Health each owe slightly more than $1 billion, and UnitedHealth Group is on the hook for $811.5 million.

CMS reported that 605 insurers participated in the risk-adjustment program last year, down from 608 in 2022.

Bright Health Group (now out of the insurance business and operating as NeueHealth), Oscar Health and Sidecar Health are among insurers that owe default risk-adjustment charges for providing insufficient data, the CMS report says.

"Overall risk scores were down slightly in the individual market and small group market in 2023," Stephens Managing Director Scott Fidel and colleagues wrote in a research note Monday.

The numbers suggest that the share of exchange members with at least one major chronic condition grew smaller over the past two years, which Fielder said may be an effect of greater overall enrollment since Congress and President Joe Biden enacted more generous subsidies.

These results, however, may also indicate that health insurance companies with the costliest memberships may not be getting adequate support, leading to skimpier benefits and smaller provider networks, Fiedler said.

“Is it transferring enough money to the insurers that have high-risk enrollees? I think there’s reason to worry that it’s not,” Fiedler said. “That fact may be linked to why the individual market has become pretty dominated by fairly narrow network plans and products.”