2015 Risk Adjustment/Reinsurance Payments Published

Risk adjustment was designed as part of Obamacare to offset the impact of the underwriting process being eliminated to allow those individuals with pre-existing conditions to obtain health insurance. Now a health plan’s risk is assessed after the member is enrolled. Health plans need to ensure the risk of their organization is reflected completely and accurately in the data submissions to the EDGE server since this is the information utilized for the risk adjustment calculation. Affordable Care Act (ACA) risk adjustment is a zero-sum game, so a health plan’s overall risk will be measured against state averages and competitor results. Last week, the “Summary Report on Transitional Reinsurance Payments and Permanent Risk Adjustment Transfers for the 2015 Benefit Year” was released by the Department of Health and Human Services (HHS). The report shows the risk adjustment payment transfers and reinsurance payments by state for each health plan that had an ACA plan in 2015.

The controversy around the ACA risk adjustment program is a hot topic and will continue to be the highlight of many discussions to come. With any new regulation or process, there comes a learning curve. Unfortunately, we are still in the early stages of a painful learning curve for a lot of health plans and co-ops. Slowly but surely, health plans are starting to realize the ACA risk adjustment program leaves no room for error. The complex nature of risk adjustment is not just the calculations or the interventions―it’s the strategy and forethought behind the scenes to know how changes within the organization will impact the risk adjustment processes. Health plans can’t just conduct some chart reviews, talk to providers, and send data to the EDGE server and expect to be successful within the ACA market. At that point, it’s just going through the motions of what most individuals know as the core operations of risk adjustment without understanding what really makes the program tick. It’s like a game of chess―you can’t make the same moves in the same order every time you play and expect to win. You need to adjust your next move dependent upon the move of your opponent. That is exactly how risk adjustment needs to be approached.

It’s a not so surprising reality that the co-ops are struggling with staying solvent given the magnitude of payments they are required to make for risk adjustment. Unbeknownst to individuals outside of a risk adjustment department, the strategy and operational structure to a fully-functioning successful risk adjustment program is extremely complex. When implementing Obamacare in preparation for the effective plan dates in 2014, co-ops, like most other health plans, did not put a lot of focus on developing a risk adjustment strategy and supporting operations. Some health plans simply did nothing, which was the worst of all scenarios. Risk adjustment was one of the “new processes” that came to be in the commercial market because of the ACA. Those individuals who had never worked with a Medicare Advantage plan before probably never even heard of risk adjustment. These things all played a role in the importance of risk adjustment being under-estimated during the development phase of the ACA for health plans. Now that everyone in the country is aware of the importance of risk adjustment and the magnitude of financial impact it carries, it’s an uphill battle for the co-ops having to face making large transfer payments, some are upwards of $30 million.

So how did your health plan do? Was all of the effort and hard work done by your organization realized in the payment transfer outcome?

Being able to answer those two simple questions is a lot harder than you would think. Most health plans measure the success of a risk adjustment program by the magnitude of the payment transfer. By doing this, you will be missing the root cause of operational changes that need to be made to establish a long-term efficient risk adjustment program. Before you can realistically answer these questions, you need to understand where your health plan started and measure success at each step of the way. Then you will be able to see if the events that unfolded were in line with what you intended to happen. If not, then adjust accordingly. If health plans don’t start looking at their internal operations relative impact to risk adjustment, then it’s only a matter of time before you will become the next sinking ship in the calculation of the payment transfer.

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