The Reality of the 2014 Commercial Risk Adjustment Payment Transfer: Forecasted vs. Actual
The signing of the Affordable Care Act (ACA) into law threw health insurers into a whirlwind of changes. The guaranteed issue law made it so no enrollee in the individual or small group commercial market would be denied coverage due to their health status. In addition, the rate for all members now had to stay the same for all enrollees, with fluctuations only allowed for a few factors such as tobacco status. That key process, known as underwriting, could no longer serve as the method to evaluate risk and either deny coverage or set the enrollee’s premium accordingly. With that shift came the introduction of risk adjustment, reinsurance, and risk corridor (“3 Rs”) into the commercial market.
When the implementation of the ACA regulations were in process, a lot of plans took the “here and now” approach―meaning, they primarily focused on what the immediate pressing issue was, not contemplating what the downstream impact could possibly be. Project dollars were being spent on over-engineering enrollment processes and developing automated tools that, in the end, were not as useful as anticipated. It’s human nature to want to tackle obstacles right in front of you, but when implementing ACA changes and introducing a new sales channel, like the Marketplace, a holistic approach needs to be taken. Developing a solid risk adjustment strategy was not part of the upfront planning for a lot of health insurers―it was a new process with a lot of grey area and unknown requirements.
So here we are now in the final stages of the first full year operating under the ACA. All health insurers are fully aware of the immense amount of work it takes to submit data to the EDGE server. With this data, CMS can calculate reinsurance dollars owed to health plans and calculate risk scores to support the risk adjustment process. They are also learning just because you can submit data to the EDGE server does not mean the overall risk for the company is reflected accurately. As each day passes, more information is becoming known about the transfer of risk adjustment payments. A limited number of health plans are being assigned a default risk score and are not eligible to receive reinsurance dollars due to not submitting adequate data to the EDGE server. In speaking with plans across the country throughout the evolution of the commercial risk adjustment operational process, the majority of health insurers were very optimistic they would be receiving risk adjustment transfer dollars, many of which will soon face the harsh reality that the forecasted risk adjustment receivable anticipated has turned into a payable.
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