On June 30, 2016, Health and Human Services (HHS) issued the 2015 risk adjustment transfer payment and reinsurance receivable results. A key financial component of the Affordable Care Act (ACA), the risk adjustment works by evaluating each public exchange plans’ members and assigns a “risk score” based on the evaluation. The purpose of risk adjustment is to transfer funds from plans with lower-risk enrollees to plans with higher-risk enrollees to encourage insurers to compete based on value and efficiency of their plans rather than attracting healthier enrollees.
Using Pareto IntelligenceTM, HealthScape Advisors analyzed the results of this year's transfers payments and identified significant variability by health plan type, state, and market, along with the following key insights:
- Consistent with last year’s results, Blue Cross Blue Shield Association (Blues) plans continue to attract a disproportionate share of the higher-risk population, and thus received larger risk adjustment payments compared to other plans.
- A quarter of marketplace plans had a reversal of fortune from 2014 to 2015, changing from receiving a payment to making a payment, or vice versa.
- Risk adjustment payments as a percentage of premiums varied significantly from state to state, ranging from 0.3% to 26.4%, as states faced a significantly changing population from 2014 to 2015.
Payments and transfers had significant differences across plans
Similar to last year, Blues plans received the majority of risk adjustment transfer payments while CO-OPs, which are nonprofit, member-controlled health insurance plans that offer ACA-compliant policies in the individual and small business markets, and Medicaid plans made significant payments.
In a plan-level comparison, the 2015 risk adjustment transfer payment results remained fairly consistent to what we saw in 2014, with only around 25% of Individual and Small Group plans experiencing a switch from receiving a risk adjustment transfer payment to making one, or vice versa.
Significant differences by state
Both individual and small group markets grew significantly from 2014 due to new market entrants, and a full-year of enrollment. In looking at the top five states with the largest amount of dollars changing hands as a percentage of premium, there are some relative themes that persist.
First, the highest receivers tend to be plans who offer broad PPO products, high Actuarial Values (i.e. More Gold than Bronze as a mix) and a high level of brand recognition. Amongst the highest payers, many are narrow network, low actuarial value plans offered by Medicaid plans and CO-OPs. The wide differences in product offerings lead to very different membership mix of metal, age, geographic concentration and member health status. These factors create more variation across the competition leading to more transfer payments in each state. The small group market is not impacted as greatly by these factors and therefore sees lower volatility across issuers and states.
Keep in mind that receivers and payers of risk adjustment transfer payments are not an indication of plan profitability, nor are they reflective of a plan’s true risk due to gaps in complete and accurate risk documentation.
What did we learn, where do we go?
Upcoming changes to the HHS risk model will continue to ripple through and have an impact on issuers’ results that need to be evaluated and understood. One way HealthScape Advisors and Express Scripts can help Exchange plans accomplish this need is through Pareto Intelligence™, which identifies potential coding gaps to bring documented risk in line with the actual risk. Pareto is a secure, web-based solution that provide medical, pharmacy and actuarial teams with timely, actionable risk intelligence for exchange, off-exchange (individual and small group), Medicare and Medicaid lives in a consultative, tailored approach based on your plan needs.
To learn more about understanding and defining your risk adjustment strategy, send a request to firstname.lastname@example.org
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