CMS has released a summary report on issuer payments and changes under the Affordable Care Act’s risk adjustment program for insurers that sold individual and small group market plans in 2019.
Risk adjustment transfers totaled roughly $10.8 billion with $5.4 billion in payments and $5.4 billion in charges, according to a Centers for Medicare & Medicaid Services (CMS) summary report of the 2019 Affordable Care Act (ACA) risk adjustment program. CMS said the program, now in its sixth year, operated smoothly for the 561 health insurers participating in the individual and small group markets with only seven insurers receiving a default charge.
The program is meant to provide a level playing field among insurers despite the ACA’s prohibitions on underwriting and guaranteed issue mandate.
The ACA’s risk adjustment program transfers money from plans with healthier, lower-risk members to plans with sicker, riskier members. This transfer mitigates the impact of adverse selection and removes the incentive for issuers to “cherry pick” low risk enrollees so that issuers focus on selling insurance and managing the health of people regardless of their age or chronic conditions.
Unlike Medicare’s risk adjustment program, the ACA’s risk adjustment is a “zero-sum program,” explained Gabriel McGlamery, senior health policy consultant, government relations, Florida Blue, and a member of RISE’s risk adjustment policy committee. Payments do not come from CMS, but the agency does calculate issuer’s risk, collect charges, and distribute payments.
“The risk adjustment program is working as intended by more evenly spreading the financial risk carried by issuers that enrolled higher-risk individuals in a particular state market risk pool, thereby protecting issuers against adverse selection and supporting them in offering products that serve all types of consumers,” CMS said in the summary report.
The size of the payout balances out the high claims from sicker enrollees, so the biggest payouts went to large insurers in the biggest states: The Blues. Blue Shield of California tops the list with a risk adjustment payment of $1.04 billion across the individual, catastrophic, and small group markets. Florida Blue will net $713 million. Blue Cross and Blue Shield of Texas is set to receive a $395 million payment.
Insurers with the lowest risk enrollees, in the largest states, paid the largest charges including Kaiser Permanente, which has a net transfer of $1,196 million, mostly in California, and Centene, which does business as Celtic Insurance Co., which will pay a net transfer of $879 million, mostly in the Texas in Florida markets.