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The Centers for Medicare and Medicaid Services (CMS) released the draft 2026 Notice for Benefit Payment and Parameters (NBPP-2026) last Friday. It is a hefty document that is also really meaty with behind the scenes policy and operational updates that the nerds have been asking about for years now. One of the big changes is that CMS is engaged in a substantial rethinking of how the risk adjustment program has dynamic effects in the marketplace for the ACA individual and small group markets.

Insurers can and will look at all sorts of data to identify areas where they think they are likely to be profitable and areas where they are likely to not be profitable. This information will inform macro-decisions such as the decision to offer anything in a given county to micro decisions such as where to advertise on buses or which brokers to recruit. Risk adjustment is intended to reduce if not eliminate selection incentives. Risk adjustment moves money from insurers that have populations that code as having below average predictable costs to insurers that have populations that code as having above average predictable costs. Right now, we think that on average, risk adjustment underpays for folks with very high expected costs. Insurers respond to that incentive by trying to not cover those folks or by reducing their liability for that population if they still have to cover them. Risk adjustment originally was diagnosis code based, but in 2018, CMS added some prescription drug codes to improve the model. CMS has not used procedure codes to risk adjust populations.

CMS is proposing to a massive philosophical change with Pre-Exposure Prophylatic (PrEP) treatment for AIDS/HIV prevention.  PrEP is a required preventive benefit.  Currently, the cost of prep is integrated into the demographic co-efficienct of the risk adjustment model.  Mostly men in certain age buckets get a generic point boost now.  However we know that PrEP use is not uniformly distributed.  To be crude, we expect a lot more PrEP use in San Francisco than in Bakerfield California.    An individual taking PrEP is highly likely a money losing member for an insurer.  Offering PrEP is a “Have-To” and not a “Want-To” problem right now.

CMS is changing this:

Because of PrEP’s high costs relative to other preventive services, and in contrast to our initial assumptions about pricing decreases, our analysis of 2022 benefit year enrollee-level data  found that PrEP services can pose a unique risk of adverse selection to the extent that utilization of PrEP services differs between plans. More specifically, our analysis found that there are statistically significant, substantial differences in PrEP prevalence between issuers in rating areas where PrEP use is most common, indicating that the addition of a PrEP factor in the adult and child risk adjustment models would be appropriate and would have a meaningful impact on risk adjustment State transfers…

We solicit comments on our proposal to create a new ACF category of model factors for incorporation into the HHS risk adjustment models to account for unique medical expenses or services (such as PrEP) that do not meet the criteria to qualify as HCC or RXC factors, but impact the actuarial risk presented to issuers of risk adjustment covered plans. In addition, we solicit comments on our proposal to modify the treatment of PrEP in the HHS risk adjustment adult and child models beginning with the 2026 benefit year, as well as how to methodologically define a potential ACF category of model factors that accounts for PrEP (or other unique medical expenses or services) and what other considerations should be part of the analysis and modeling for this proposed new category of model factors (such as the availability of drug rebates or differences in medication adherence for PrEP).

This is a huge conceptual change.

It is also a huge boost for health equity.  CMS is proposing a risk adjustment factor of over 2x standard premium to pay for PrEP.  This makes individuals who are likely to use PrEP to go from definite money losers to likely break even or money makers. Insurers will chase profits by removing barriers to access for PrEP and potentially marketing in PrEP likely communities more aggressively.

Fixing risk adjustment is one of several ways to improve health equity as the incentives matter a lot.

PREP, risk adjustment and health equityPost + Comments (10)