ACA Risk-Adjustment Winners and Losers Shouldn’t Be Surprised

Insurers are sizing up their reimbursements under CMS’ reinsurance program and some plans appear to be off on their estimates.

As part of the Affordable Care Act’s plan to protect against adverse selection and protect insurers from excessive losses that could come from a disproportionate share of consumers with high medical costs, money is transferred between plans with relatively lower risk enrollees to plans with relatively higher risk enrollees.

Several insurers released estimates in SEC filings of how much in reinsurance funds they expected to receive for 2014.

Of the major payers, Anthem is receiving the biggest payout of more than $667 million. Still, its estimate was $753 million. Humana was expecting $586 million and will receive $549 million. Aetna is in line to receive $356 million from the premium stabilization program, including payments to Coventry and other subsidiaries, which surpasses its estimate of $338 million.

Claims are eligible for reinsurance funds if an enrollee buys an ACA-compliant plan and the person’s costs exceed $45,000 but are less than $250,000.

In this instance, the federal government pays a sizable portion of those costs back to the insurer. Previously, the CMS was going to pay 80% of those costs. But the agency announced two weeks ago that it was increasing that payment to 100%, meaning insurers will be fully covered for any of those high-cost claims from 2014, the first year ACA plans went into effect.

The CMS raised the payment level because the reinsurance funds received from insurance companies “exceeded the requests for reinsurance payments.”

Plans know how many eligible claims they had between $45,000 and $250,000 that year and even if they were using an 80% estimate of reimbursement by the CMS, they would still at least be in the general ballpark, said Tim Jost, a Washington & Lee University law professor and avid follower of Affordable Care Act regulation.

Requests for comment from Anthem, Humana, Kaiser Permanente, Cigna, UnitedHealthcare and the Blue Cross and Blue Shield Association were not returned by deadline.

The remaining big payouts include Kaiser Permanente with $300 million, Cigna with more than $200 million and United, which had a limited amount of ACA-compliant plans in 2014, and will get just over $31 million. Various Blue Cross and Blue Shield plans will collectively rake in more than $3 billion.

Blue Cross of California is receiving $401 million but also owes $182 million to the risk-adjustment pool, while the California Blue Shield plan will collect $363 million in reinsurance and $135 million from the risk-adjustment funds.

“The early results for the risk adjustment and reinsurance premium stabilization programs demonstrate that these programs are working as intended, which will help keep premiums stable and encourage insurance companies to compete on quality and price, not who can attract the healthiest enrollees,” Kevin Counihan, CEO of the Health Insurance Marketplaces, said in a statement.

HHS has collected $8.7 billion in reinsurance fees thus far, with another $1 billion on the way.

AHIP voiced no concerns about the report. “These programs are critical to help consumers transition to the ACA market and to provide important stability in the early years of implementation,” Clare Krusing, a spokeswoman for the trade group, said.

Payers will receive reinsurance payments starting in August. For the 2014 benefit year, more than $7.9 billion in reinsurance payments will be made to 437 issuers nationwide.

Supporters of the ACA on Wednesday said the CMS is doing a good job of ensuring no plan feels overburdened with the costs of an excessively sick population.

An additional 77 plans entered the exchanges in 2015—a 25% rise in the number of plans over 2014.

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