What a mess we have created. In order to balance potential inequities resulting from barring underwriting by insurance carriers, the Affordable Care Act established three risk-sharing programs.
The first is an ongoing risk adjustment program which transfers payment from insurers who have assumed better risk, to those that acquire worse risk.
Also see: "7 myths of ACA reporting."
The second is the transitional reinsurance fee, which has been funded by a decreasing fee per covered life assessed against insured and self-insured plans, to reimburse large claims in the individual market.
The third, called the risk corridor program, applies to insurers that offer qualified health plans (QHPs) certified through the exchange. It compares each insurer’s target costs to actual results. If results are better than the target, the insurer pays into the pool. If they are worse, a subsidy is owed.
The results for the 2014 risk corridor are in. Claims of $2.87 billion were submitted, as compared with $362 million in payments into the program. As a result, CMS will be reimbursing only 12.6% of claims submitted. These risk adjustment programs were intended to be self-supporting and clearly this has not been the case.
‘Extreme adverse selection’
The reasons for the shortfall are pretty obvious. The delay in the effective date of the individual mandate meant that the better risks sat out of the pool without facing penalty. This was compounded by extremely lenient enforcement. Additionally, allowing benefit grandfathering reduced the pool of QHPs.
In Larry Kirshner’s recent post on our FrenkelySpeaking company blog, he wrote that even now enrollment expectations are not being met. All of these reasons point to extreme adverse selection. In addition, as I have written, rate approval by the state insurance departments hasn’t been generous which limits future surpluses over targets.
This three year program ends in 2016 and it is likely that rolled-forward claims will never be funded. Our dysfunctional government is going to have to find a way to repay shortfalls that they created. Weaker carriers such as the failing co-op plans have been, or are being, crippled by this non-payment. And in the end, the taxpayers are going to be called to answer. Do we really want government involved with health care?
Hasday is president of Frenkel Benefits, LLC, one of the largest privately held independent employee benefits brokers in the United States. Reach him at firstname.lastname@example.org or (212) 488-0200, and read more from Hasday at frenkelyspeaking.com.
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