The implementation of the Affordable Care Act (ACA) significantly changed insurance regulation in the individual and small-group health insurance markets. The ACA included a budget-neutral risk-adjustment program intended to prevent adverse selection by transferring payments to insurers who have higher-risk enrollees as reflected in their claims and supplemental data submitted to the EDGE server. Unlike the Medicare Advantage risk adjustment program, the ACA's risk adjustment program requires insurance plans in the individual and small group markets with healthier risk populations to transfer funds to plans with costlier risk populations.

Since the start of risk adjustment in 2014, various courts have upheld the RA methodology despite challenges in 2017 and 2018, and CMS states that the program continues to work as intended. Risk scores increased slightly between 2018 and 2019 as well, and effectuated coverage dropped from 10.6 million individuals in February 2019 to 9.1 million individuals in December 2019, with an average month effectuated enrollment of 9.8 million individuals, which is slightly lower than 2018.

In 2019, 561 issuers participated for a total transfer amount of $10.8 billion, with $5.4 billion in payments to plans with costlier risk populations, and $5.4 billion in charges to those with healthier populations; up from $10.4 billion in 2018. Individual market accounted for the largest share at about $7.98 billion. Non-grandfathered plans in the individual and small group markets, inside and outside of the marketplaces, participate in the risk adjustment program. Blues plans fared the best at $2.4 billion received; Kaiser not so much at nearly $1 billion paid to CMS. Centene and Molina also owe significant risk adjustment transfers. Some critics of the risk adjustment program maintain that although CMS might state that risk adjustment is working as intended large transfers increase market instability, decreases competition and affordability, and creates incentives for insurers to avoid the healthy and thus creates an unbalanced risk pool. As a result, smaller and regionally based insurers have left the market.

However, there may be hope for smaller insurers. On the watch list for 2020 are the six new states that are shifting away from the federal insurance exchange to run their own online marketplaces. These are Maine, New Mexico, New Jersey, Nevada, Oregon and Pennsylvania. They will join 12 states and the District of Columbia with self-contained exchanges. Since 2014, states using the federal marketplaces have seen an 87% rise in premiums, while state exchanges saw 47% growth. The states making the shift claim that they can run their own exchanges more efficiently and can better respond to their population's unique needs, and have learned this through the accumulation of data and robust analytics since the start of premium stabilization programs in 2014.

 

Dawn Carter
Director, Product Strategy
Centauri Health Solutions, Inc.