Insurance companies on the hook for record risk-adjustment payment

Marketplace health insurers will pay a record $9.24 billion in 2023 through an Affordable Care Act program intended to prevent carriers from targeting healthier policyholders for enrollment, according to a Modern Healthcare analysis.

The Centers for Medicare and Medicaid Services launched the risk-adjustment program in 2014 to discourage insurance companies from cherry-picking policyholders and stop big year-over-year premium swings. Companies on the exchanges that insure less expensive members must send funds for CMS to allocate toward those covering sicker individuals.

Companies’ risk-adjustment payments increased 31.3% from $7 billion in 2022. For-profit carriers will be responsible for paying 68.1% of all charges through the program, according to a Modern Healthcare analysis of CMS data, while nonprofit companies will pay the remaining 31.9%. Insurers that do not pay the charges in full by Oct. 15 will be referred to the Treasury Department for debt collection.

Publicly traded insurers will recoup nearly 30% of the $9.24 billion, the Modern Healthcare analysis found. Nonprofit carriers, such as the Blue Cross and Blue Shield plans dominating the exchanges, will pocket 70%.

Modern Healthcare derived its estimates from a CMS data file containing information on 594 health plans. CMS does not identify those companies’ parent corporations, however, so Modern Healthcare identified the owners and added together each subsidiary’s risk-adjustment charge to estimate the total amount for which their parent companies are responsible. Because of this limitation in the source data, Modern Healthcare’s estimates may differ from others.

Insurance companies' performance in the program can broadly indicate the health status of their enrollees and their ability to code member risk. CMS calculates the amount owed to each carrier by analyzing the demographics and medical claims of each insurer's membership on a state-by-state basis. Carriers that catalog the most conditions through risk codes for each enrollee receive higher payouts.

As in previous years, the vast majority of payments are due from carriers operating in the individual, non-catastrophic market, the CMS report said.

Among for-profit insurance companies, Bright Health Group’s $1.9 billion charge represents the highest amount owed through the program, according to the Modern Healthcare analysis. The company also reported the highest "default risk adjustment charge" of $3 million for failing to provide adequate, timely data to federal regulators, the CMS report said.

Bright Health's risk-adjustment payment reflects the size, health and metal mix of the company’s 2022 membership, a spokesperson wrote in an email. The company declined to comment on whether it would be able to make its risk-adjustment payment in full.

Bright Health switched to third-party claims processor Evolent Health last January after its in-house system failed to record patients' health status and medical bills. The company closed its exchange plans in 15 states last year and is working with states to pay down the claims incurred by its nearly 1.1 million former members.

Insurtechs Oscar Health and the defunct Friday Health Plans owe the second- and third-highest total amounts through the risk-adjustment program: $1.4 billion and $779.7 million, respectively. State regulators are unsure whether the insurance companies will be able to make good on the charges, particularly in the case of Friday Health, which states have placed in receivership. Friday Health did not respond to an interview request.

Oscar Health, which did not respond to an interview request, attributed its high risk-adjustment payment to the balloon in new membership driven by the Biden administration's special enrollment periods last year, according to a Securities and Exchange Commission filing the company submitted in May. Oscar worked with federal regulators last year to limit sign-ups in its largest market and expects to pay a smaller sum in 2024 because most of its enrollees are renewals, for which it already holds claims data, the SEC filing said. The company faces a class-action lawsuit from shareholders alleging it failed to disclose how the COVID-19 pandemic could impact its payment through the risk-adjustment program ahead of its initial public offering.

Oscar extended its contract with Ciox Health in April for another seven years to perform risk-adjustment functions.

If companies are unable to reimburse the full charge, the risk adjustment sum paid to other carriers in the state will be cut in proportion to the shortfall.

Centene is the largest exchange carrier with 3 million members and, among for-profit carriers, is also poised to receive the largest net amount through the program: $782.2 million. The company did not immediately respond to an interview request.

Clarification: This story has been updated to include a paragraph explaining the methodology and limitations of Modern Healthcare's estimates of risk-adjustment payments by parent company.