Let’s talk about something not likely to tear apart the comment section — ACA risk adjustment!
Earlier this week, the Centers for Medicare and Medicaid Services released their 2023 risk adjustment summary for ACA regulated plans. The ACA requires insurers whose population codes as healthier/lower cost than the state average to send money to insurers whose population codes as less healthy/more expensive than the state average. The program intention is to make insurers, on net, to be risk agnostic. With perfect risk adjustment, an insurer should not care if they are covering a 63 year old with a medical history that looks like a CVS receipt or a 23 year old who has not seen a doctor in five years and feels great. We don’t have perfect risk adjustment.
One program feature of the ACA risk adjustment system is that it is zero sum within a state. It is all between insurer transfers minus a tiny (<$1 per member per month) administrative fee that is paid to CMS to run the program. There is no new federal money being added to the system. There is a strong implied assumption that insurers that owe money will be around to pay insurers that are counting on that money to pay claims.
That does not always happen.
Last year, FRIDAY HEALTH PLAN shut down mid-year as it had massively overexpanded and was losing money hand over fist. FRIDAY was able to do this even as they covered a very healthy, low using population.
And now the insurers that were covering the sick people in the states where FRIDAY blew up are holding the bag:
In four out of the five states where FRIDAY was operating, they covered a healthier than average population. On net, they owe $161+ million dollars that are very unlikely to be recovered by other insurers.
The insurers that took on medical risk also took on low cost/low acuity competitors blowing up risk. The insurers in North Carolina that are in a net receivable position are all very well capitalized insurers so it won’t lead to system failures, but the incentives are to go low and race to the bottom. Not compensating insurers for taking on risk leads them to not want to take on risk.
Steve LaBonne
I think Democrats really need to be vocal about the crucial role CMS plays in keeping ACA, Medicare, and Medicaid functioning and the damage Republicans could do with control of it even without control of Congress. This terrified me all through Trump’s first term but despite some fuckery the worst didn’t happen. I don’t think we’ll be so lucky next time. Let’s make sure there isn’t a next time.
Yutsano
Oh how much you underestimate this blog…
This is the cloggy side of the ACA honestly. I understand we’re stuck with private insurers (for now) and they need some kind of incentive to stay in the ACA, but this whole trying to keep everyone whole doesn’t work. Someone will be left holding the bag and then that insurer pulls out of that market and round and round we go. I know trying to get any improvements will have to wait a while but this seems like something that cold be fixed.
Meyerman
I take it there is no mechanism in the health insurance system to force companies to reserve against potential risk adjustment penalties? Would such a system have to be created state by state (assuming it doesn’t already exist?
BretH
A friend of mine, retired but not eligible for Medicare took a low-cost ACA plan that apparently only covered emergencies. He had a cardiac issue that was not emergency-room level but nevertheless cost $50,000. He tells me his insurer is refusing to pay a dime. Are there really plans with no out of pocket maximum??
David Anderson
@BretH: that is not an ACA plan
Sister Golden Bear
@Yutsano:
Love, love will tear us apart again.
David Anderson
@Meyerman: Even if you’re reserving against a non-payment event, it makes taking on risk more expensive which is BAD
Schtreaky
I’m surprised that none of the legislators who wrote and passed the ACA stopped to think that private companies might “race to the bottom” to maximize profits (and bonuses), close up shop and leave the remaining mess for the public to resolve. When are our lawmakers going to learn that private companies have zero interest in serving the public good? Some of these same predator companies are now gaming the Medicare Advantage system for fun and profit — and much worse care.