A couple of quick points on risk adjustment:
A Co-op in Connecticut has failed due to risk adjustment net outflows being much higher than they thought:
Until last week, the nonprofit HealthyCT had “adequate capital and sustainable liquidity” — but that fell apart Thursday with a federal requirement that hit HealthyCT with a $13.4 million bill, according to the Connecticut Insurance Department.
State Insurance Commissioner Katharine Wade said that the resulting “hazardous financial standing” of HealthyCT led her to place the co-op under supervision, which prevents the company from writing any new policies, and also from renewing any large or smaller employer plans that expire after last Friday.
The thing that is puzzling me is that the total risk adjustment outflow is roughly $30 per member per month. That is substantial but as a percentage of total premium, it is on first estimate roughly 10% of total premium. This puzzles me for two reasons. First, most likely the co-op had booked some portion of the entire risk adjustment outflow on their prior financial statements so the shock to their balance sheet should be less than $13.4 million. Secondly, even if they had booked zero net risk adjustment flow, most insurers have the capital structure to absorb a 10% premium loss due to one-off events. Were they that thinly capitalized?
The CEO of CareConnect, the insurance company started by Northwell Health, says he needs the Cuomo administration to take extraordinary action if his company is to remain solvent.
The company, which offers insurance plans on the individual and small group markets, owe…That’s 30 percent of revenue, said Alan Murray, CareConnect CEO.
Murray, Oscar CEO Mario Schlosser and EmblemHealth CEO Karen Ignagni say New York’s calculations do not reflect reality and are, in effect, punishing smaller providers while larger companies, which are better at documenting, reap financial rewards….
What Vullo and many insurance executives across the country are worried about is that established companies selling plans in the small group market are simply better at the paperwork the federal government requires in order to prove the health — or in this case the sickness — of their patient population….
“Paying $13 million for 2015, I can withstand,” he said. “But I have to project it forward for 2016. [That] means I have to come up with an $80 million payment. …
Someone on an almost Top-10,000 blog noted the double whammy of poor projections over the weekend:
Additionally if there is a significant discrepancy between booked and actual, the auditors will probably insist on a review of the assumptions made in the booking. That means there is a very good chance that CY-16 risk adjustment projections will be revised. A new risk adjustment line item will show a higher projected risk adjustment outflow for this year unless there was a material change in plan offerings in 2016 compared to 2015 that led to a material change in the expense and health profile of the membership. If there is an adjustment, that further weakens the cash/reserve position of the co-op.
So the co-ops that are getting hit with significantly higher than projected risk adjustment outflows will be getting hit with a double whammy. An immediate adjustment to CY-15’s balance sheet and then a future adjustment to accommodate higher CY-16 risk adjustment net outflows.
Revenue neutral risk adjustment is a red queen race that favors organizations that have their acts together with significant technical expertise and very large data sets. The basic logic of which plans have large outflows and which plans have large in-flows is determined by the fundamental plan architecture. Plans that offer low rates with narrow networks and high gatekeepers and advertise with a heavy focus on mandate avoidance or to technologically savvy Millennials will see money leave their plans. Plans with high prestige and broad networks with fairly low gatekeepers will see money come in from risk adjustment.
Aggressive but legal chasing of the needed diagnosis codes is part of the reason why there is a large differential in payment flows. Once the market stabilizes, aggressive risk adjustment chasing will be something that everyone does but at that point, an exemplary risk adjustment chase program will be like a good GOTV campaign or the skill of getting hit by pitches by MLB hitters where they are worth something and they are worth doing, but they won’t change the fundamental dynamics of a blow-out.
Oh, there’s a name I haven’t seen in a while, and haven’t missed seeing.
I’m worried about Maine Community Health Options. They have been fantastic.
No major piece of legislation goes this long without being amended as a result of experience in the real world. Another reason to try for a landslide to take back the House.
@dr. bloor: Pray tell
@Richard Mayhew: High end insurance industry lobbyist–think Wayne LaPierre, but without the personal warmth. My first wife and I used to throw shit at the teevee whenever she was giving soundbites.
@dr. bloor: what a vile skid mark of a human. Endlessly criticizing the ACA while demanding crapification-related modifications -which were granted, followed by endless criticism of the end result.
Comparisons to Wayne Lapierre are apt IMHO.
Im just a complete dumbass on all things healthcare, but could these unexpected $ outflows be related to 1) peeps requiring significant healthcare needs finally getting it, and symbiotically, 2) docs ready and willing to offer these new patients every and all diagnostic tests in an effort to boost the bill?
I cannot cease to be amazed at the cost of the simplest of medical procedures. Its amazing to me that healthcare providers can stay solvent at all….
@Punchy: Not really (that would have shown up in reinsurance and risk corridor money)
What this is a measurement of relative coded/scored risk between the different insurers. The co-ops and other insurers that are paying money into the pool have members who are being reported as being on net comparatively healthier than members covered by the insurers who are getting paid.
This is extremely distressing news for me, as I have HealthyCT (and have been fairly impressed with the customer service and coverage I’m getting). Current policies are apparently good through the end of the year, but after that I’m up shit creek.