• Menu
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Before Header

  • About Us
  • Lexicon
  • Contact Us
  • Our Store
  • ↑
  • ↓
  • ←
  • →

Balloon Juice

Come for the politics, stay for the snark.

Boeing: repeatedly making the case for high speed rail.

When I decide to be condescending, you won’t have to dream up a fantasy about it.

One way or another, he’s a liar.

You cannot love your country only when you win.

The next time the wall street journal editorial board speaks the truth will be the first.

Anyone who bans teaching American history has no right to shape America’s future.

Every reporter and pundit should have to declare if they ever vacationed with a billionaire.

Putting aside our relentless self-interest because the moral imperative is crystal clear.

If you still can’t see these things even now, maybe politics isn’t your forte and you should stop writing about it.

Republican also-rans: four mules fighting over a turnip.

Of course you can have champagne before noon. That’s why orange juice was invented.

Sadly, media malpractice has become standard practice.

… pundit janitors mopping up after the gop

We are aware of all internet traditions.

Fundamental belief of white supremacy: white people are presumed innocent, minorities are presumed guilty.

Give the craziest people you know everything they want and hope they don’t ask for more? Great plan.

Rupert, come get your orange boy, you petrified old dinosaur turd.

Is it irresponsible to speculate? It is irresponsible not to.

A sufficient plurality of insane, greedy people can tank any democratic system ever devised, apparently.

A thin legal pretext to veneer over their personal religious and political desires.

Proof that we need a blogger ethics panel.

Hey hey, RFK, how many kids did you kill today?

Giving up is unforgivable.

There are a lot more evil idiots than evil geniuses.

Mobile Menu

  • Seattle Meet-up Post
  • 2025 Activism
  • Targeted Political Fundraising
  • Donate with Venmo, Zelle & PayPal
  • Site Feedback
  • War in Ukraine
  • Submit Photos to On the Road
  • Politics
  • On The Road
  • Open Threads
  • Topics
  • COVID-19
  • Authors
  • About Us
  • Contact Us
  • Lexicon
  • Our Store
  • Politics
  • Open Threads
  • 2025 Activism
  • Garden Chats
  • On The Road
  • Targeted Fundraising!
You are here: Home / Anderson On Health Insurance / Tilting the table and risk adjustment

Tilting the table and risk adjustment

by David Anderson|  October 23, 20186:43 am| 7 Comments

This post is in: Anderson On Health Insurance

FacebookTweetEmail

The federal district court judge in New Mexico is making actuaries and insurance plan designers weep when he decided to not vacate his opinion on the risk adjustment lawsuit with sweeping sentences like the following (Case 1:16-cv-00878-JB-JHR Document 90 Filed 10/19/18 Page 102 of 112):

Second, insurance companies cannot avoid sick enrollees, because the ACA still requires them to cover people with pre-existing health connections and prevents them from charging these enrollees higher premiums.

Bullshit.

Individual market insurers operating in a guaranteed issue, community rated world without risk adjustment can be very, very competent at avoiding sick people.  This is irrelevant if there is only a single insurer in a state as risk adjustment is already irrelevant to that insurer.  Their premiums are supposed to be set to cover any and all medical risk.

Risk adjustment minimizes incentives to race to the bottom when there are two or more insurers in a state.

There are several profitable large insurers (Centene, Molina etc) that routinely have very large risk adjustment outflows.  This means that they are covering a population that is coded as healthier than state wide average.  Conversely the other insurers in Centene/Molina states have, on net, covered populations that code as sicker than the state wide average.  The insurers that pay into risk adjustment are (partially) compensating other insurers for taking on expensive risk that their business strategies don’t want to handle well.

How do they select for low cost risk?

There are a couple of different strategies that Centene and Molina use.  The most important one is that they tend to use narrow, low cost networks.  This often means that they’ll exclude hospitals and doctors that tend to treat unusual and expensive conditions as well as charge high rates for normal conditions.  More specifically, carving out a few specialists who are the regional rare/expensive disease providers will make everyone who has that rare/expensive disease go to the insurer that has those specialists in their network.

Benefit design can also matter.  Centene uses “Donut” designs where there is a very high deductible and out of pocket maximum but several common and low cost services are carved out of the deductible. Individuals who have typical low utilization of one or two PCP visits, an urgent care visit and generic antibiotic prescriptions over the course of a year may pay nothing out of pocket even though their plan could easily have a $5,000+ deductible. These plan designs are attractive to healthy people and unattractive to people who know that they are going to cap out compared to plan designs that include lower but more inclusive deductibles and lower out of pocket maximums.

Thirdly, limited market entry can matter. Insurers can choose where they offer plans. Centene is entering North Carolina and Pennsylvania in 2019. For both states, Centene is entering a very small geographic footprint that will allow them to avoid pockets of high cost/high morbidity in the state as well as a chance to get their feet wet.

In a well functioning market, we should want insurers to specialize in covering the people that they are good at covering while not shifting costs to other insurers and individuals. Risk adjustment is a mechanism that allows insurers to specialize in covering low risk/low expensive folks as well as covering high risk/high expense folks. It is not perfect as there are exploitable hooks in the ACA formula but those are not the hooks that are being argued about in the lawsuit.

If there was no risk adjustment, the insurers that are currently covering a disproportionate number of individuals with high costs and high risk scores would be in trouble. They are currently covering those costs with a combination of premium revenue and net risk adjustment inflows. If risk adjustment disappeared, the two fundamental choices would be to either raise premiums to a point where a significant chunk of the insurer’s low risk population looks at the new, higher premiums from their current insurer and see the much lower premiums (now that the low risk insurer is no longer sending money for risk adjustment, their premiums drop) of the low risk insurer and move or the high risk insurer finds way to dump risk.

If they elect to dump risk, they’ll only offer narrow networks with donut benefit design and only in certain counties. If their data tells them that there is a huge cluster of individuals who need Hep-C treatment or who are on a liver transplant list in Northnowhere County, they won’t offer any plans in Northnowhere County. If their data says that there are a dozen individuals with hemophilia, they won’t offer coverage of the regional hemophilia treatment center. Of if there are political reasons to not fully pull out of a region, then only plans with extremely high premiums will be offered in those regions. Those decisions are not frequently made today because risk adjustment either makes the high risk insurer whole for covering these folks or at least closes the loss to an acceptable level.

An obligation to accept the signed contract of anyone who wants to buy coverage (Guaranteed issue) only matters if coverage is being offered. We have live demonstrations of how insurers can legally avoid risk right now in a risk adjusted environment. Those strategies are currently profitable but they are not the only profitable strategy on the individual market. If there is no risk adjustment, then the insurers covering high risk/high cost individuals either need to get out of the market, create local monopolies or adopt risk dodging strategies.

FacebookTweetEmail
Previous Post: «On the Road and In Your Backyard 28 On the Road and In Your Backyard
Next Post: I VOTED! Open Thread »

Reader Interactions

7Comments

  1. 1.

    Mathguy

    October 23, 2018 at 8:15 am

    Why is it that so many people (e.g., judges) think that they are experts in complicated, difficult fields like insurance, education?

  2. 2.

    dnfree

    October 23, 2018 at 9:54 am

    I am with you, Mathguy. Years of working in systems analysis in various fields (including health insurance once, back in the early 1980s!) taught me that even a field that appears simple and straightforward to an outsider actually has a lot of complexity from inside. That’s one of the reasons I appreciate reading these posts.

    Possibly this judge appreciates the complexity of the law, and maybe he doesn’t even grasp that. But he doesn’t seem to even realize his own ignorance. Sure glad he’s not on the Supreme Court.

    Not directly relevant, but sort of, this xkcd cartoon: https://xkcd.com/1831/

    (ETA that I appreciate Mathguy for knowing the difference between e.g. and i.e.!)

  3. 3.

    Neldob

    October 23, 2018 at 10:28 am

    Bleeds all your merry hearts!

  4. 4.

    Brachiator

    October 23, 2018 at 10:51 am

    @dnfree:

    (ETA that I appreciate Mathguy for knowing the difference between e.g. and i.e.!)

    And I appreciate dnfree, Mathguy, David Anderson, et. al.

  5. 5.

    David Anderson

    October 23, 2018 at 11:06 am

    @Mathguy: and this is why I only claim expertise in health insurance and soccer refereeing.

  6. 6.

    Brachiator

    October 23, 2018 at 12:14 pm

    @dnfree:

    Years of working in systems analysis in various fields (including health insurance once, back in the early 1980s!) taught me that even a field that appears simple and straightforward to an outsider actually has a lot of complexity from inside. That’s one of the reasons I appreciate reading these posts.

    Totally agree with you. And I often read these posts without offering any comment, because there is so much to try to understand.

    Possibly this judge appreciates the complexity of the law, and maybe he doesn’t even grasp that. But he doesn’t seem to even realize his own ignorance.

    I was listening to a recent radio with John Cox, who is running for governor of California. He kept harping on how the government should stay out of health insurance, and emphasized how the free market would ensure lower premiums. But these simplistic right wing nostrums just emphasized that he had no clue as to how a health insurance market could most effectively help people pay for medical costs.

  7. 7.

    dnfree

    October 23, 2018 at 2:15 pm

    @Brachiator: And I agree with and appreciate you, too, Brachiator! “Simplistic right wing nostrums”–exactly.

Comments are closed.

Primary Sidebar

On The Road - beckya57 - Copper Canyon, Mexico, April 2025 6
Image by beckya57 (6/19/25)

Recent Comments

  • Jackie on Simon Rosenberg Sees Emerging Opportunity, and I Make Some Lists (Jun 19, 2025 @ 3:08pm)
  • Geminid on Simon Rosenberg Sees Emerging Opportunity, and I Make Some Lists (Jun 19, 2025 @ 3:07pm)
  • rikyrah on Excellent Read:‘The Struggle to Fulfill Juneteenth’s Promise and Reckon with Its History’ (Jun 19, 2025 @ 3:03pm)
  • cmorenc on AM in NC – NO KINGS – Durham, NC (with the Durham images this time!) (Jun 19, 2025 @ 3:02pm)
  • J. on AM in NC – NO KINGS – Durham, NC (with the Durham images this time!) (Jun 19, 2025 @ 3:01pm)

Personality Crisis Podcast (Cole, DougJ, mistermix)

Balloon Juice Posts

View by Topic
View by Author
View by Month & Year
View by Past Author

Featuring

Medium Cool
Artists in Our Midst
Authors in Our Midst
No Kings Protests June 14 2025

🎈Keep Balloon Juice Ad Free

Become a Balloon Juice Patreon
Donate with Venmo, Zelle or PayPal

Calling All Jackals

Site Feedback
Nominate a Rotating Tag
Submit Photos to On the Road
Balloon Juice Anniversary (All Links)
Balloon Juice Anniversary (All Posts)
Fix Nyms with Apostrophes

Social Media

Balloon Juice
WaterGirl
TaMara
John Cole
DougJ (aka NYT Pitchbot)
Betty Cracker
Tom Levenson
David Anderson
Major Major Major Major
DougJ NYT Pitchbot
mistermix

Keeping Track

Legal Challenges (Lawfare)
Republicans Fleeing Town Halls (TPM)
21 Letters (to Borrow or Steal)
Search Donations from a Brand

Site Footer

Come for the politics, stay for the snark.

  • Facebook
  • RSS
  • Twitter
  • YouTube
  • Comment Policy
  • Our Authors
  • Blogroll
  • Our Artists
  • Privacy Policy

Copyright © 2025 Dev Balloon Juice · All Rights Reserved · Powered by BizBudding Inc

Share this ArticleLike this article? Email it to a friend!

Email sent!