Risk Adjustment suspension

New ACA disruption and sabotage news was reported last night by the Wall Street Journal health care team.

The Administration is suspending risk adjustment payments for at least 2017 and 2018.

The Trump administration is expected to suspend an Affordable Care Act program that plays a key role in the health law’s insurance markets, a move that could deal a financial blow to many insurers that expect payments.

The suspension of some payouts under the program, known as risk adjustment, could come in the wake of a recent decision by a federal judge in New Mexico, who ruled that part of its implementation was flawed and hadn’t been adequately justified by federal regulators, people familiar with the plans said.

The Centers for Medicare and Medicaid Services, which oversees the program, may at least temporarily suspend the payments insurers expected to receive this fall, stemming from their 2017 business, and next fall, which would have reflected their 2018 business, the people said…

For 2016, risk-adjustment transfers were valued at 11% of total premium dollars in the individual market, according to a CMS report.

The biggest question is what does “suspension” mean. Is it a couple of weeks? If so, this is not that big of a deal. If it is several months/years this could be a big deal.

The lawsuit that is referenced in the article is from a small New Mexico insurer that contends that the HHS decision to make risk adjustment revenue neutral was arbitrary and capricious. A judge agreed with them. HHS, partially as a response to the suit and before the decision was issued had future proofed themselves from this judgement by including a very long and detailed discussion of their reasoning behind the revenue neutrality assumption for 2019 risk adjustment.

This only applies to 2017 and 2018. I don’t think this will have first order impact on 2019 rates as RA should be paid and insurers are not allowed to build into future rates bumps that compensate for bad prior years. They can use the experience of bad prior years to color actuarial assumptions (going from optimistic to pessimistic morbidity assumptions) that may lead to “overshoots” like we have seen this year but 2017-2018 risk adjustment shenanigans can not inform future rates.

Risk adjustment moves money from insurers with populations that code as healthier than the state wide average to insurers with covered populations that code as sicker than the state wide average. It is designed to minimize cherry picking incentives. If risk adjustment is suspended for several months/years, we need to think about three groups of insurers and states.

The important thing to remember is that although 11% of premiums moved in 2016 due to RA, the impact was not uniform across the country. Some insurers had no net flows in or out, and other insurers had 20% or more of their premium leave or enter their accounts due to risk adjustment.

1) Insurers that are the only insurer in the state for 2017 and 2018. They have no risk adjustment obligations coming or going. This is merely a curiosity for them.

This can also apply to overwhelmingly dominant insurers in states with two or more insurers. The dominant insurer (like BCBS-North Carolina) may have some RA exposure but it is small one way or another where an RA miss might be the financial equivalent of an abnormal flu season.

2) Insurers that are in a net RA payable position in 2017 and 2018. These are insurers like Centene and Oscar. They need to monitor the situation but RA suspension is not a bad thing for them as they get to hold onto their cash for longer. The amount of cash can be minor to very significant. Insurers that aggressively sought to cover a healthy population at low actuarial values could see 20% or more of their earned premiums unexpectedly sit in their accounts for far longer.

3) Insurers that are in a net RA receivable position. These are the insurers that we need to worry about. RA receivables are counted on the balance sheet as high quality cash-like assets. If the RA suspension is short term (a few weeks) then this is no big deal except for the ulcers of finance directors.

The problem will be if state regulators or firm auditors tell insurers to treat 2017-2018 RA receivables like the risk corridor receivables and either write them off entirely or apply a very significant discount and quality degradation. Well capitalized insurers can survive that hit. Smaller insurers tend to have thinner cushions. They may go out of business or be seized by the state regulators.

The second order effect is that some of these insurers may look at the chaos and decide that even if they can survive a long term capital hit, the ACA market is not worth the headaches and risk and then they would withdraw.

This is a still breaking story so things will change.






32 replies
  1. 1
    laura says:

    This is a still breaking story so things will change.
    The story is they’re still breaking things…..

  2. 2

    David
    The why part is easy.
    But who? Who is the anchor in the decision? Azar is not stupid. He is more or a pragmatist and my read on him thus far is he has agenda items, Medicaid, MA, and pharma, and while he is no fan of the ACA, it seems odd he would have his (primary) fingerprint on this decision. Pissing off MCOs for this seems distracting; there are bigger fish to try. RA also seems like too remote an issue for Trump unless someone is poking him with it who wishes to create further chaos–and is giving him the Cliff Notes version.

    So who? WHo is driving this train?
    Brad

  3. 3
    WereBear says:

    @Bradley Flansbaum: So who? WHo is driving this train?

    I don’t think anyone is driving this train. There’s a cement block on the throttle and everyone is whooping it up in the bar car.

  4. 4
    patrick II says:

    When I see all of the law suits and system gaming (not all necessarily in a bad way), I have to ask: is it this complicated under single payer? Or is than just the nature of managing medical care?

  5. 5
    joel hanes says:

    what does “suspension” mean. Is it a couple of weeks?

    It means “forever, unless something forces us to to re-instate it, which nothing and no one will do so long as Republicans control all three branches of the government”.

  6. 6
    B.B.A. says:

    @patrick II: We have single-payer public education, and it’s also a complicated mess.

  7. 7
    Major Major Major Major says:

    @patrick II: given that “single payer” merely defines one part of one mechanism of insurance delivery, this question can’t easily be answered. But I imagine if somebody came into power intending to wreck the NHS or French scheme or something, they could do quite a bit of sabotage.

  8. 8
    sdhays says:

    @B.B.A.: Public schools are significantly more socialist than single-payer. The government operates the public schools and pays all the workers’ salaries directly, rather than just paying for everyone to go to private schools. For the average user of the system, it’s pretty simple. Of course, privatization makes it more complicated, and many public schools have problems, but complexity in itself has never struck me as the biggest problem with the public schools.

    Single-payer wouldn’t eliminate the complexity of hospitals and care, but would, at least, remove the complexity of paying for things, and that’s absurdly complicated in the previous and current system.

  9. 9
    B.B.A. says:

    @sdhays: Single-payer has different meanings to different people. Some think it means the British NHS, others think it means Canadian Medicare, still others would include the German system even though it’s multi-payer.

  10. 10
    JGabriel says:

    @B.B.A.:

    Single-payer has different meanings to different people. Some think it means the British NHS, others think it means Canadian Medicare, still others would include the German system even though it’s multi-payer.

    Maybe, but I suspect most people, or at least most semi-informed people, think of single-payer as something like the Canadian system, whereas they think of the British system as nationalization, and the German system as a hybrid multi-payer system similar to (but not exactly) Obamacare.

  11. 11
    patrick II says:

    @B.B.A.:

    I meant the Canadian system. I had a doctor friend who worked in a Canadian hospital for six months of comparable size to his own smaller suburban hospital in near St. Louis. He said that the Canadian administration staff for managing payments had six people, his home hospital had sixty. It seems so much simpler, but I don’t know about tip-of-the-iceberg appearance but with hidden complexity issues underneath the apperances in that system.

  12. 12
    JGabriel says:

    @sdhays:

    Single-payer wouldn’t eliminate the complexity of hospitals and care, but would, at least, remove the complexity of paying for things …

    … in a sane country. In the US, the GOP would, if they can’t stop a single-payer system, do everything in their power to try to make paying for health care as complex and unwieldly as it is now – by demanding co-pays, gov’t approval to see specialists, income-based premiums to be taken out of your paycheck or paid to the government during tax season, and so on.

  13. 13
    YetAnotherJay formerly (Jay S) says:

    How would this play in medical loss ratio requirements? Could an insurer with a lower than expected risk pool end up in trouble by not having risk adjustment payments collected? Would those payments just go into the federal coffers if they were collected? Obviously too little info to know, but would that be part of the chaos calculus as well?
    ETA I forgot about the possibility of premium rebates and I don’t understand how rebates and risk adjustment works with MLR.

  14. 14
    sdhays says:

    @JGabriel: Which is why we can’t have nice things.

  15. 15
    Villago Delenda Est says:

    It’s going to be “forever”. The Trump regime assholes are determined to blow up ACA by whatever means are available to them.

  16. 16
    Yutsano says:

    @JGabriel: I’ll take the Australian public/private split. Works very well for them and is probably easier to implement here than just going straight up Canadian single payer.

  17. 17

    […] But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  18. 18
    lahke says:

    If they’re suspending the payments, do we still have to submit the data? Because that’s an FTE on my team that can get redirected.

  19. 19
    Pete Mack says:

    Wouldn’t doing this violate contractual obligations? The government agreed to a policy two years ago. It owes this money today. It surely can’t welsh on an agreement this easily?

  20. 20
    Villago Delenda Est says:

    @Pete Mack: Did Donald Trump ever bankrupt a casino?

  21. 21

    […] But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  22. 22

    […] But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  23. 23

    […] this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  24. 24
    cmorenc says:

    @sdhays:

    @B.B.A.: Public schools are significantly more socialist than single-payer. The government operates the public schools and pays all the workers’ salaries directly, rather than just paying for everyone to go to private schools.

    For that matter, so are all police departments and most fire departments.

  25. 25
    David Anderson says:

    @lahke: IANAL and I am not the boss of you….

    @Pete Mack: eventually, the money will be released/moved around.

  26. 26
    Matt McIrvin says:

    @Pete Mack: Who’s going to stop them? Judges?

  27. 27
    Julie says:

    David, can you answer a technical question? I am looking at Table 4 in the CCIIO-PPFMG RI-RA Payments Report, 2016, which shows the insurer-specific information. I am guessing that a positive number in the column labeled “Risk Adjustment Transfer Amount (Individual Market)” indicates the amount received by the insurer, while a negative number indicates the amount paid. So for example the ($30,666,000.99) shown for Group Health Cooperative in WA means they paid $30.7m into the risk adjustment program. Is that correct? Thanks.

  28. 28
    YetAnotherJay formerly (Jay S) says:

    @Julie: I am not David nor am I an accountant, but I think this 2016 GHC/ KPMS document supports that, see page 41-42 for risk adjustment that shows net premium revenue reductions (payments?) in the ballpark of the CMS number.

  29. 29
    Bob Hertz says:

    Risk adjusrment exists in every system that has multiple insurers and guaranteed issue. This includes Medicare Advantage incidentally.

    It is my impression that most risk adjustment programs are funded with extra revenue, rather than moving funds from one insurer to another.

    Once again the ACA seems to try to have sociaiism on the cheap.

  30. 30
    Stan says:

    @B.B.A.: We have single-payer public education, and it’s also a complicated mess.

    Huh? Former school board member here…. we most assuredly do not have single-payer public education.

  31. 31

    @Julie: yes, that is correct!

  32. 32

    @Bob Hertz: Not neccessarily, risk adjustment in Pennsylvania Medicaid was revenue neutral with a similar (CDPS) model as the HCC model used for the ACA. The big difference between Medicaid RA and ACA RA is the variation in provider payments by insurer. In Medicaid, most providers are getting paid a narrow band near the baseline Medicaid rate (the same applies to Medicare Advantage as Medicare FFS anchors payments). In the ACA, the provider payments can easily range from 80% or 90% of Medicare to 150% or 200% of Medicare. That is the challenge not “socialism on the cheap”

Trackbacks & Pingbacks

  1. […] this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  2. […] But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  3. […] But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

  4. […] But this doesn’t affect all insurers who participate on the marketplaces, as ACA policy expert David Anderson points out. For example, insurers who are the only carriers in the state for 2017 and 2018 should remain […]

Comments are closed.