The plan would install a so-called circuit breaker to prevent companies from paying more than 2% of their premium revenue into the program each year. That boundary would make insurers’ financial obligations more predictable and avoid the kinds of surprise payouts that contributed to the destabilization of several health plans in 2015.
Franchini is leading the push to overhaul the risk adjustment program amid concern that the program is flawed and will prompt small insurers and startup companies to leave the ACA’s individual exchange market. The idea is still in its early stages and has yet to be formally announced. But Franchini said several other insurance regulators have privately expressed interest in the proposal.
PPACA is a reconstruction of the private and small group insurance market. It is a transition away from where profitability meant a core competency of running away from risk towards a basic core competency of covering sick people and a future goal state of preventing people from getting too sick. Restricting risk adjustment payments re-emphasizes competency at running away from sick people while charging healthy people high rates.
The easiest way to make money in health insurance is to not pay claims. The easiest way to not pay claims that does not involved really ugly stories on the local news or long prison terms is to only cover healthy people.
PPACA with guaranteed issue and modified community rating for the small group and individual markets takes away the bluntest tool to avoid covering the sickest people. We can’t use previous medical history to not cover highly probable high cost individuals.
However, it still is not that “hard” to craft plans that are amazingly unappealing to sick people in order to gain a disproportionately healthy risk pool. Capping risk adjustment exposure is an invitation to create some extraordinarily ugly policies and plan designs. These ugly plan designs would be optimize to attract extremely healthy people and scare away expensively sick people.
Uncapped risk adjustment makes ugly selection optimized plans far less profitable and thus less attractive to offer.