Obamacare Reinsurance and Risk Adjustment, Year One.

The much-anticipated “Summary Report on Transitional Reinsurance Payments and Permanent Risk Adjustment Transfers for the 2014 Benefit Year” has been released by the Centers for Medicare & Medicaid Services (CMS). A staggering 99.7% of Issuers were able to successfully submit data. The remaining 0.3% either did not set up an EDGE server or submitted data CMS could not use for risk adjustment calculations.  Considering the aggressive timeline Issuers were given, this completion percentage is quite remarkable. Those who failed to submit compliant risk adjustment data were slapped with a non-compliance fee, which was distributed to other Issuers in the state.

CMS also announced plans would receive full payment under the reinsurance program. The reinsurance coinsurance rate has been increased from the provisionally announced 80% to 100% since the funds collected by CMS exceeded the requests for reinsurance payments. The information provided in this report further confirms risk adjustment will be an integral part of an Issuer’s financial standing.  It demonstrates risk adjustment payment transfers equate to anywhere between 2% of the total premium for merged plans to 21% of the total premium for catastrophic plans.  So overall, from the highest view point, the processes for risk adjustment and reinsurance have shown to be a success. That perspective does not necessarily stand true when looking at the Issuers at a more granular level.

Yes, 99.7% of Issuers were able to successfully meet the submission requirements and get their data onto the server. That does not mean the data were complete and accurate to truly reflect the risk of the company. It just means, out of the 758 issuers eligible to participate in the risk adjustment payment transfer, 99.7% of them were able to send some sort of data to the server in the format CMS required and, therefore, were able to avoid receiving the default non-compliance charge.  Issuers’ completion percentages increased with each submission that got closer and closer to the April 30, 2015, deadline. The increase may not have been because Issuers were correcting errors; rather, it was CMS relaxing edits, allowing more data to be accepted onto the EDGE server. It would not have been beneficial for neither the Issuers nor CMS to have low completion percentages.

The commercial risk adjustment model is a zero-sum approach, meaning it collects funds from lower-risk Issuers then redistributes those funds to higher-risk Issuers.  In order to determine how one company compares against another, state averages are calculated. An average is calculated for the monthly premium, risk score, rating area, and actuarial value for each risk pool category. These averages are then used in combination with the Issuers’ actual calculations to determine the amount an Issuer is required to pay or will be receiving for risk adjustment.  In looking at the Issuer-specific information, you’re able to see the “winners” and “losers” for each state.

When evaluating how your company compared against internal projections and against your competitors in the market, here are a few things to consider:

• Approximately 20%-30% of your commercial individual and small group population will have a diagnosis correlating to a Hierarchical Condition Category (HCC) risk adjustment category. A missing diagnosis code for commercial risk adjustment could be the difference between receiving a payment or making a payment. What is your company’s end-to-end reconciliation process for member and claims EDGE server data submission?
• There were unique claims circumstances CMS wanted handled a specific way, such as bundled claims and interim claims. These types of claims typically carry a lot of diagnosis information and claim cost.  Were these claims handled appropriately to ensure demographic and diagnosis information was fully captured?
• Commercial risk adjustment is not just a process but rather a company strategy needing to be embedded throughout various departments in the organization. Is the strategy for your organization clear and understood by the areas involved in knowing how they impact risk adjustment?

It seems like it has taken forever for the 2014 risk adjustment payment transfer and reinsurance payment information to be released. Whether your results were stellar or not, don’t get too hung up on the actual payments. What’s done is done. Spend the time evaluating the full 2014 end-to-end process. What went well? What needs to improve? Act quickly and set your plan in place to impact your 2015 results—April 30, 2016, will be here before you know it.  And invest wisely in people and systems to avoid subsidizing your competition due to inadequate or incomplete diagnosis data.

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