Blue Cross and Blue Shield insurers once again racked up some of the largest risk-adjustment payments under an Affordable Care Act program meant to discourage individual and small-group insurers from cherry-picking healthy employees, CMS data show.
Blue Shield of California is set to receive the largest single risk-adjustment payment of $1.04 billion across the individual, catastrophic and small-group markets, according to Modern Healthcare’s analysis of CMS data released Friday. The analysis excluded the high-cost risk pools and merged markets.
The permanent risk-adjustment program, now in its sixth year, transfers money from plans that enrolled relatively healthy, lower-risk members to plans that enrolled sicker, riskier members in the individual and small-group markets.
The zero-sum program is based on health plan members’ risk scores, which are calculated using members’ clinical diagnoses and other demographic factors. Sicker members receive higher risk scores, while healthier members receive lower scores.
In a report accompanying the risk-adjustment program data, CMS said the program is working as intended. The agency said 561 insurers participated in the program in 2019. Payments and charges between the insurers totaled $10.8 billion—$5.4 billion in payments and $5.4 billion in charges. In 2018, the transfers totaled $10.4 billion.
For 2019, risk-adjustment state transfers totaled 9.7% of premiums in the individual market among noncatastrophic plans, compared with 9.1% of premiums the previous year. Transfers increased to 4.1% of premiums in the small-group market, compared with 3.9% of premiums in 2018.
Nationally, risk scores used to calculate the risk-adjustment transfers increased by about 2.5% in the individual market, excluding catastrophic plans, compared with 2018, according to the report. Risk scores in the small group market increased by about 0.6%.
David Anderson, a research associate at Duke University’s Margolis Center for Health Policy, said CMS’ report was “business as usual” with few surprises. Higher overall risk scores don’t necessarily reflect that the market is becoming sicker, he said. Instead, it’s likely that the movement of some enrollees away from silver and platinum plans toward gold plans helped to increase risk scores. Patients enrolled in gold plans receive higher risk scores than those enrolled in silver plans, even if they have the same condition, he said.
Moreover, insurers that have been selling plans in the market for several years are better able to maximize risk scores because they have more data on their enrollees, he said.
Anderson explained that insurers with broad networks that include prestigious academic medical centers—such as the Blues—tend to receive money from the risk-adjustment program because they attract patients with known high-cost medical conditions. Insurers with narrower networks without those high-cost hospitals tend to attract individuals who don’t anticipate needing many medical services. Those insurers usually pay into the risk-adjustment program. Both are business strategies that can work for an insurer. Centene may pay large amounts into the risk-adjustment program but is still profitable in the individual insurance market.
A spokesman for Blue Shield of Calif., which received the largest risk-adjustment payment, explained that the insurer serves “those who are sicker and higher-risk.”
“The money is used to keep rates more affordable for individuals and small businesses, and it’s already reflected in the premiums we offer,” he wrote in an email.
A spokesman for Blue Cross and Blue Shield of Texas said that its risk-adjustment payment “indicates we have a large population of individuals and small business BCBSTX policy holders and of those who hold our insurance, we’re getting a much less healthy population than our competitors.”
In the past, small insurers participating in the individual and small-group markets argued that the risk-adjustment methodology was unfair because it favored large plans with large amounts of data and experience. Some insurers challenged the program in court but in late December 2019, the 10th U.S. Circuit Court of Appeals upheld the risk-adjustment methodology.
At this point in the life of the program, Anderson said most of the market “has gotten reasonably competent if not sophisticated” at risk-adjustment.