Late last week, the Center for Medicare and Medicaid Services released the 2018 risk adjustment reports. Risk adjustment in the ACA context moves money on a net neutral basis from insurers with lower than statewide average coded health risk to insurers with higher than average coded health risk. The CMS model uses diagnosis on claims and some prescription data to estimate the incremental extra cost an enrollee “should” have after the model adds in some demographic (age/gender) factors. Each disease category in the individual market has four distinct co-coefficients, one for each metal band. Usually, Bronze plans have a lower risk score than Silver and Gold plans.
Risk adjustment is tough to get right. It involves actuaries projecting first who they think their insurer will be covering for the next benefit year and then projecting what the rest of the state’s market will look like and which carriers get which people at which price point. It is easy to miss on risk adjustment.
And there is a massive miss.
In 2018, Oscar expanded to Tennessee. They entered only the Nashville market where they had a dirt cheap Bronze plan and then priced competitively for Silver and Gold. This mostly worked as they got 20,000+ enrollees. HIOS ID 23552 is now being charged $31,691,661 in risk adjustment outflows. This means that Oscar’s actual experience was that they covered a healthy to very healthy population compared to the rest of the state. Being a net risk adjustment payer is not indicative of profitability or non-profitability; Centene for instance is a constant net risk adjustment payer but they are consistently profitable. I am not surprised that Oscar is paying $103 Per Member Per Month (PMPM) in risk adjustment as they optimized their plan offerings to sell a lot of bronze plans which are attractive to healthier and younger than average individuals. Their marketing is aimed at tech savvy, convenience shoppers who value a seamless experience.
Selling a lot of bronze plans and aiming at younger individuals will produce significant risk adjustment outflows in most “normal” situations. However 2018 was not normal due to CSR termination and the policy responses adopted by many insurers, including Blue Cross and Blue Shield of Tennessee. BCBS-TN both Silverloaded CSR costs and more importantly, they have consistently (since 2017) Silver-gapped the counties where they held a monopoly. In 2017, BCBS priced their benchmark silver plans way above the least expensive Silver plan so that the least expensive silver plan is free for families up to 300% or more of the federal poverty level. BCBS-TN also publicly declared early in the 2018 rate setting cycle that they would be embracing this strategy to the hilt. They also silver loaded CSR cuts so Gold would be a vastly better value proposition in 2018 than it was in 2017 in the BCBS-TN monopoly counties. The rest of the state would be priced to be heavy on silver and gold plans which means that even if there was no difference in inherent health characteristics of the covered population, the rest of the state would have higher risk scores and coded risk merely due to the metal plan selections.
All of that is fine if it is anticipated and priced correctly.
That was not the case, at least it is not the case in the official rate filing documents.
Looking at the 2018 Universal Rate Review Template (URRT) Worksheet 2 for HIOS ID 23552, and looking at column BT PRJ_RISK_ADJ and we see Oscar projected in 2018 that they would have no risk adjustment payments beyond the program operation fee of $0.14 PMPM.
Oscar’s projections for risk adjustment for 2018 were offer by a factor of 700.
That is a modest oopsie.
I just don’t understand what Oscar does differently than my former co-workers, besides lose a tremendous amount of money every year. They think they can get their MLR in the high 80s for next year, which is where a well run, lean insurer can profit but they are anything but a skinny insurer. Call me an old fuddy duddy but I am confused as to how they get to profitability with their admin costs as they are even assuming everything else goes right.
I am still stuck there as missing on risk adjustment is understandable, it is a tough thing to get right, but missing by over $100 PMPM takes a special type of disruptive effort especially when the general outline of the state’s markets were being publicly declared during the premium setting process.