CMS released the 2016 risk adjustment and reinsurance on Friday afternoon. There are a couple of very interesting nuggets in it from my point of view. The first is the risk pools seem to be getting healthier:
There were a number of reasons to believe that risk scores would be higher for the 2016 benefit year relative to the 2014 benefit year. The average enrollee was enrolled for more months in 2016 relative to 2014. Total claims volume is higher when individuals are enrolled for longer periods of time, leading to increased numbers of reported diagnoses, higher risk scores, and greater paid claims amounts per member, even when the risk profile of the membership is held constant. Further, in the third year of operation, issuers would have more experience submitting claims to the EDGE server and properly capturing diagnoses for purposes of risk adjustment. All of these factors would cause an increase in average risk score (the measure of actuarial risk) without representing an increase in the actuarial risk of the membership. Despite these factors, risk scores were stable in the individual market
There are two caveats to this paragraph. The first is that the coding system changed from ICD-9 to ICD-10 on 10/1/15. Coders were learning how to optimize their codes in ICD-10 for all of 2016. Several of the ICD-9 codes that scored well were crosswalked to lower value codes in ICD-10. Minor model changes that can lead to small but significant changes in risk adjustment flows. Secondly, there is an assumption that insurers are building larger data sets on their exchange members and thus they can more effectively data mine past claim history to upcode current claim history. We know that the exchange markets are naturally churning markets. A significant chunk of people go on Exchange and then leave within a policy year because they got something better. Even more importantly, the healthiest people are the first ones to jump when a cheaper premium net of subsidies is offered.
Deep and rich data sets help but I am trying to figure out how much they help. Is there a way to study how continually enrolled members have seen their risk scores change in relationship to RVU value of their claims?
Secondly, it looks like reinsurance and risk adjustment have been working right as a program.
I lose any sympathy for Centene or Molina and the crocodile tears over risk adjustment payables when I see how small their RI payments are
— Wesley Sanders (@wcsanders) July 1, 2017
Risk adjustment sends money out of plans with lower than state average coded disease burden. That money shows up at plans with higher than state average coded disease burden. Reinsurance is attached to specific patients who run up large claims. We would expect plans that cherry pick healthy members via narrow networks and gaming the subsidy attachment point to have large risk adjustment outflows. We would also expect them to have few high cost catastrophic cases. And that is what we are seeing. This is a viable business and coverage model but it will lead to large outflows as a conscious choice.
With this title I totally expected a post about safety suggestions for the 4th of July. I figure a lot of people will be adjusting their risk upwards one beer and one M80 at a time.
@Victor Matheson: I am not the person to talk to about firework safety. I made far too many dumb decisions as a 16 year old
If Risk Adjustment and Reinsurance are working, it’s too bad the Drumpf, the Turtle and the ZEGS are going to blow it all up this month. This talk of repeal and replace later is scary.
Thanks for all your posts David, I read them all even if you do leave me behind sometimes, but with out you I wouldn’t know about comparing Actuarial Values of plans or even about the risk adjustment. the MSM has sucked at explaining Obamacare, I guess because “Health insurance is complicated!” and just talking about on person’s premium doubling is easier. (i.e. Anecdotes Rule!)
@MikeS: Yeah. My insurance premium did double under Obamacare, but I got actual coverage in exchange.
Any opinion on the impact of the Cruz reforms? I think they were in the new CBO request?
@d58826: Not David, but NYMag:
I think it was Drum (among David and many others) who have said that Cruz’s amendment would destroy the entire health insurance market via a race to the bottom.
The CBO estimates will be here when it is released. (The BCRAP version is there now.)
@Another Scott: Thanks. Well sounds like if your going to blow up the system then go with Cruz, He is the expert in that
Sounds like the Cruz touch.
@MomSense: I found a story, but it wasn’t Drum (or David). Dunno where it was…
Bloomberg from June 29 has some comments:
It would be a disaster.
It reminds me of the “life insurance” that I had as a temp in the ’80s. The policy offered a whole $2000 death benefit, IIRC.
It’s a joke of a policy to try to cover destroying everything for those not in the 0.01%.
They should just drop the pretense and say “You get a policy! And You get a policy!” and mail everyone (who can prove they’re “Legal”) their own Cracker Jack Prize of a policy and declare victory (Donnie would like it – “See, I kept my promise!!”).
(via KHN search for “Cruz”)
@Another Scott: I think the game plan is blow up the market with the hope that o, force it will force the D’s to negotiate over some small piece of Trumpcare. Get it passed and then blame the D’s for the 23 million people who lose their ins. And if the D’s don’t cave, then blame them for the market collapse.
Same scam and it will be covered as 1. both sides do it and 2. if the D’s had only been more reasonable. Remember how often Obama was accused of not being willing to meet the R’s halfway, when in reality he had already move halfway before even starting to negotiate.