Proposed changes to a CMS program that shifts funds to insurers that attract higher-risk consumers, intended to boost plan enrollment by lowering some premiums, could have the opposite effect and should be abandoned, researchers from the Brookings Institution and the University of Southern California argue in a new analysis.
The CMS risk adjustment program established under the Affordable Care Act transfers funds from insurers with plans that draw healthier enrollees to insurers whose plans cover riskier populations in the individual and small group markets, both in and outside of exchanges.
The program was created to reduce incentives for insurers to avoid enrolling consumers with potential to file more expensive claims.
Billions of dollars in payments have been transferred between insurers annually under the program since the 2014 benefit year, according to a CMS technical paper published in October. In 2020 alone, $11.17 billion, or 7.5% of premiums, was transferred across risk pools.
There’s a large pool of money at stake for health insurers, and many weighed in on CMS’ proposal changing risk-score calculations, though opinions were split. Some urged the Biden administration to give them more time to consider the ramifications of the changes, and how it could affect plan enrollment and pricing.
Encouraging enrollment
CMS is now proposing to recalculate parameters for the risk score methodology of the program, including adding a two-stage weighted approach, starting in the 2023 benefit year. The goal is to improve the model’s accuracy in predicting risk in subpopulations, with the broader aim of further reducing premiums on the cheaper plans favored by lowest-risk people.
Lower premiums, in turn, would be expected to encourage more consumers to purchase the plans, and more insurers to issue them, according to CMS’ proposed rule. The agency said it found healthier enrollees are under-accounted for in the current models, and the new methodology intends to correct that.
“We believe that by addressing the under-prediction of costs associated with lowest-risk enrollees … we could further encourage the retention and offering of plans that enroll a higher proportion of this subpopulation of enrollees. We believe issuers offering these types of plans are at greater risk of exiting the market if transfers calculated under the state payment transfer formula under-compensate for the true plan liability of the lowest-risk enrollees,” CMS wrote in the proposed rule.
The agency said it received comments from stakeholders suggesting under-prediction of lower-risk enrollees could discourage healthy consumers from signing up for some plans. The result could undermine development of a thriving and stable market and competition on the basis of quality rather than risk selection, CMS said.
But the agency noted other stakeholders questioned whether model changes should in fact focus on improving prediction for the lowest-risk enrollees when the risk adjustment program is intended to reduce incentives for issuers to avoid enrolling individuals with higher risk.
CMS invited feedback on whether the two-stage procedure should be introduced alone or in conjunction with other model changes, whether it should not be implemented at all, or whether the agency should look to improve the current model’s prediction for lower-risk enrollees.
USC-Brookings assessment
The USC-Brookings researchers are urging CMS to drop the two-stage approach. The process would increase risk scores for healthier enrollees and reduce them for higher-risk consumers, which would allow insurers that tend to attract lower-risk enrollees to pay less into risk adjustment, while those that enroll riskier consumers would receive less, according to the paper.
That would drive enrollees toward skimpier plans, raise premiums on plans favored by those at higher risk and therefore in need of more robust coverage, and potentially reduce competition, the researchers argue.
Premiums for plans with features such as broader provider networks and more lenient utilization controls would likely go up for those consumers who remain in them, the paper contends. Further, increasing the incentive for insurers to attract lower-risk enrollees could prompt plans to drop features valued by higher-risk consumers.
The USC-Brookings report also cast doubt on whether the proposed model changes would spur a substantial increase in insurance enrollment. Reducing premiums on skimpier plans could just draw an influx of higher-risk enrollees leaving more robust plans, the paper said.
To improve market outcomes, CMS should instead attempt to tilt the playing field toward plans that appeal to higher-risk people, the researchers said. The agency’s current methodology most likely undercompensates, rather than overcompensates for differences in claims risks across plans, they said.
“We thus conclude that CMS should abandon its two-stage proposal. While changes to risk adjustment are warranted, they should aim to increase, not reduce, payments to insurers with higher-risk enrollees,” the paper said.
Payers respond
In comments filed on the CMS proposed rule, major health insurer Anthem recommended the agency conduct further analysis of the impact of recalibrating its risk adjustment model to ensure the changes would not negatively impact issuers’ ability to offer competitively priced products when enrolling a disproportionate share of high-cost enrollees.
“Anthem would not support any model change that improved the risk predictions for certain subpopulations but at the expense of the RA program’s ability to mitigate adverse selection for high-cost enrollees,” the insurer wrote.
Payer lobby America’s Health Insurance Plans filed a comment advising CMS to continue the process of seeking stakeholder input for future changes to the risk adjustment program, saying issuers have had limited time to analyze the current proposal and provide feedback. The proposed rule was published in the federal register on Jan. 5, and comments were due last week.
Issuers have varying opinions on the proposed risk adjustment model changes, AHIP said.
Meanwhile, powerful hospital group the American Hospital Association commented that it supports continued refinement of the risk adjustment models to increase their overall predictive validity. Risk adjustment continues to be important to the strength and stability of the marketplaces, AHA said.