A recent analysis conducted by Oliver Wyman Actuarial and backed by the Blue Cross Blue Shield Association, found that overall, according to publicly available data, the Affordable Care Act risk adjustment program is working, with funds largely moving from payers with low claims to those with high claims.
The goal of the risk adjustment program was to make it easier for insurers to participate in ACA exchanges by distributing funds from payers that cover fewer high-cost enrollees to those that cover more high-cost patients. This program was implemented to help achieve one of the goals of the ACA: to prevent insurers from using adverse selection and refusing to cover people with high health care needs and costs and to make it so insurers were competing based on the cost and quality of the insurance policies they offer, not their ability to avoid high-cost individuals.
The authors of the analysis compared each issuer’s risk adjustment transfer amount to its average claim level, relative to other issuers in the state. They then fit a line to the data to see the correlation between risk adjustment and claim levels, finding that as noted above, the risk adjustment system is moving funds from those issuers with relatively low claims to those issuers with relatively high claims, as intended.
The analysis further found that 65% of smaller insurance companies received risk adjustment payments in 2021. While there did not seem to be evidence that smaller payers are disadvantaged in the program, they did tend to see more variance in their payouts per member per month, when compared to the larger payers.
Additionally, while smaller payers did not seem to be disadvantaged, the report found that plans that enroll large numbers of people with high care costs tend to be underpaid through risk adjustment as the program underpays for high-cost claimants. “We believe the data presented here shows that neither small, nor new issuers are being disadvantaged by the risk adjustment system,” the researchers wrote. “We also believe that the data presented here shows that plans enrolling a disproportionate share of high-cost enrollees are generally disadvantaged.”
The data also indicated that issuers that are new to either the individual ACA market or a particular state were not disadvantaged in the program.
The report concluded that some insurance companies’ financial difficulties stemming from the ACA market may not be the risk adjustment program, but the result of underpricing. The authors recommend that issuers that participate in the individual ACA market anticipate the impact of risk adjustment in their premiums and issuers who will be payers need to include an adequate provision in their premiums to make those payments while issuers that will be receiving risk adjustment payments need to reflect those payments and lower their premiums, so they can bring competitive premiums to the market.
The authors of the report therefore believe that lawmakers may not want to first consider making changes to the risk adjustment system to specifically favor new or smaller issuers, but may want to review other potential factors and reasons for certain issuers’ financial difficulties. Additionally, the study authors raise concerns that changes to the risk adjustment system may inadvertently cause existing issuers to reconsider their participation in the market.