Once again, the U.S. Department of Health and Human Services (HHS) reported that the risk adjustment program operated smoothly for the 2021 benefit year. For the seventh year, the risk adjustment program is working as intended by more evenly spreading the financial risk carried by issuers that enrolled higher-risk individuals in a particular state market risk pool, thereby protecting issuers against adverse selection and supporting them in offering products that serve all types of consumers.
A total of 572 issuers participated in the risk adjustment program for the 2021 benefit year, of which 571 received a risk adjustment state transfer (excluding the high-cost risk pool), and 3 received a default risk adjustment charge, in at least one risk pool. For the 2020 benefit year, a total of 576 issuers participated in the risk adjustment program.
Nationwide, the absolute value of risk adjustment state transfers across all state market risk pools (excluding the high-cost risk pool) was about 8.7 percent of total premiums, as compared to the absolute value of 2020 benefit year transfers, which was 7.4 percent of total premiums.
HHS also noted that the amount of paid claims remains strongly correlated with risk adjustment state payments and charges. Risk adjustment transfers funds within a state market risk pool from issuers with lower-than-average actuarial risk to issuers with higher-than-average actuarial risk. Issuers with paid claims amounts in the top quartile were more likely to receive risk adjustment payments, while issuers with paid claims amounts in the bottom quartile were more likely to be assessed charges. For example, in the individual non-catastrophic risk pool, issuers in the lowest quartile of claims costs, on average, were assessed a risk adjustment charge of approximately 22 percent of total collected premiums, an increase from approximately 14 percent in 2020. Conversely, on average, issuers in the highest quartile of claims costs received a risk adjustment payment of approximately 13 percent of their total collected premiums, a decrease from 15 percent of total premiums in 2020. These correlations between claims quartiles and average risk adjustment state transfer amounts as a percent of premium provide evidence that risk adjustment is working as intended, by transferring funds from issuers with lower-than-average actuarial risk to issuers with higher-than-average actuarial risk.
Because the paid claims amount is dependent upon the completeness, timeliness and accuracy of the data submitted to the EDGE server, issuers must closely examine their claims data to ensure that improper claim denials, pended claims, and other claims adjudication issues are not causing the paid claims amount submitted and accepted by the EDGE server to be lower than forecast. These issues often have their root cause in system configuration and other operational inefficiencies. If issuers find themselves in a situation where they are unexpectedly assessed charges or receive lower than expected payments, it is time to perform a leakage analysis to identify and address issues that are preventing EDGE acceptance of complete, accurate and timely data. Claims operational issues, including payment issues, and not risk adjustment operational issues are most often the root cause of discrepancies between actual and forecast risk adjustment charges and payments.
To assist issuers who are concerned about their risk transfer status, Centauri offers strategic advisory services that focus on an end-to-end leakage analysis of the full revenue cycle. This analysis identifies, quantifies, and suggests mitigation strategies for gaps that cause risk adjustment revenue loss in the full revenue cycle, from provider submission of a claim to EDGE server acceptance. More information about this valuable service can be found in this short video.
Director, Product Strategy
Centauri Health Solutions, Inc.