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You are here: Home / Anderson On Health Insurance / Correlated risk in risk adjustment?

Correlated risk in risk adjustment?

by David Anderson|  March 31, 20238:02 am| 2 Comments

This post is in: Anderson On Health Insurance

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Last week, Texas seized the assets of Friday Health Plan in Texas because the insurer is insolvent as Modern Healthcare reports.  More interesting to me is the risk-adjustment correlated risk problem:

Friday Health estimates it will owe $535.9 million in risk-adjustment payments to other Texas insurers for 2022…. Bright Health Group, for example, estimates it will owe a $723 million in risk-adjustment payments to other Texas insurers for last year, according to financial filings…Oscar Health, which announced a new CEO Tuesday, expects to owe $1.5 billion in risk-adjustment payments across multiple states including in Texas, according to financial filings.

OSCAR has a national footprint, but between Friday and Bright, there is $1.25 billion dollars in risk adjustment payables that are liabilities of companies that are in really poor financial health.  Risk adjustment payables occur when an insurer covers a population that codes as lower expected cost/better health than the state wide average.  The other insurers in Texas were (mostly) covering people who as a population code as sicker than average and thus the insurers were expecting to get $1.25 billion dollars from low risk insurers in the state.  If all or a substantial chunk of the money either never gets paid or gets paid only after several years of litigation, smaller insurers that did well on their own and managed their finances appropriately might be in trouble.

Correlated risk is a nasty thing.

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Next Post: Preventive care ruling »

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2Comments

  1. 1.

    Anonymous At Work

    March 31, 2023 at 9:49 am

    Is there not a stop-gap measure that allows the risk-adjustment payees to receive the financing that they might actually need to survive?  Government pays out and receives the necessity to get paid in return?  I’d think “Oh, rather than this smaller company we can bully…we now expect to be sued by the government for a non-small chunk of change” would provide a strong incentive to settle, or at least not be “that guy”.

  2. 2.

    StringOnAStick

    March 31, 2023 at 12:50 pm

    I’m pretty sure this is not good.  //s.  It makes me more concerned that this is happening in a governance circus like TX.

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