The Obamacare marketplaces will offer different choices for millions of consumers in 2017. Next year, three major insurers along with several smaller companies will no longer be participating in federal or state exchanges. If you have a plan with Humana, Aetna, United Healthcare or another insurer that has cut ties with the marketplace, then you may be mapped onto a different plan or a different carrier altogether.
Insurance companies have cited substantial financial losses as the primary reason for their departure, but there are other factors that make competing on state and federal exchange sites challenging. How insurers interact with consumers via the exchanges — and vice versa — will impact the long-term stability of the marketplaces under the Affordable Care Act. In an effort to improve business relations with insurers while keeping qualified health plans affordable for consumers, the Department of Health and Human Services (HHS) has proposed several new rules for 2018, some of which may take effect in 2017.
The Notice of Benefit and Payment, announced at the end of August, addresses key concerns about the marketplace going forward. The full text of the document can be found at the Federal Register website, and the department is currently taking formal comments at Register.gov through early October. In this series of posts, we’ll talk about the major components discussed in the HHS notice. For starters, let’s discuss the risk adjustment program.
The Risk Adjustment Program
Under the Affordable Care Act, no one can be denied health insurance based on medical history. Prior to the ACA, insurers could essentially pick and choose their risk pool by denying coverage to sicker enrollees or charging significantly higher premiums. It’s expensive to care for people who need to see a doctor more often or those who take costly prescription drugs. One of the goals of the ACA was to provide greater access to affordable health care even to people who needed more expensive services. The idea was that younger, healthier people would also enroll in large numbers, effectively offsetting the cost of care for sicker consumers. Unfortunately, that has not happened to the degree that insurers expected.
As a result, insurers set their premium rates too low at the outset, and over the past three years, some companies have seen huge cuts in their profit — and some heavy losses — to the point that several major insurers have now opted out of the federal and state marketplaces. One of the ways that the government has attempted to encourage insurer participation is with the risk adjustment program.
The risk adjustment program essentially works to make sure that insurers can adequately gauge the types of enrollees who are signing up for coverage. It also prevents insurers from “risk selecting” by distributing funds proportionately among plans that cover low-cost and high-cost enrollees. In a blog post recapping the major changes that have been proposed by the HHS notice, Kevin Counihan, CEO of the marketplace, summed up the proposed changes to the risk adjustment program for the next two years as follows:
- In 2017, the risk adjustment program will be modified to better calculate the cost of enrollees who drop their coverage before the plan year is over. It’s more expensive to cover people who cancel their policies early than it is to cover people who stay for the full 12-month term. Modifying the program to account for early cancellations will help insurers better assess costs as a whole.
- Drug utilization data will be used starting in 2018 to give insurers a clearer picture of the costs involved with insuring certain enrollees. For people with conditions like HIV, hepatitis C or diabetes, it will be easier on insurers to assess risk if they have access to drug utilization data — how many prescriptions and of what kind, for instance.
- Another modification to the program includes spreading the cost of the most expensive enrollees among issuers. A portion of costs in excess of $2 million per individual would be spread out throughout issuers. Ideally, this would help smaller companies learn to assess the risk associated with high-cost enrollees.
The notice also asks for comment on how to address the cost of insuring healthier enrollees. Much of the focus of the ACA has been on enrolling people who couldn’t get insurance before the law took effect, but it’s equally important to consider the needs, risks and costs associated with healthier individuals since the cost of their care offsets the cost of higher-risk individuals. The HHS wants to make sure that insurance companies can adequately assess risk so that they can continue to offer affordable options to everyone who signs up for health insurance.
