the affordable care act part 3: risk and reinsurance
TRANSCRIPT
THE AFFORDABLE CARE ACT:
REINSURANCE, RISK CORRIDORS, AND
RISK ADJUSTMENT
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OVERVIEW
• Reinsurance
• Risk Corridors
• Risk Adjustment
• Key Dates
These are all premium/
subsidy stabilization programs to help protect
enrollees and issuers from significant
overpayments
or losses.
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REINSURANCE
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REINSURANCE
• A temporary program starting in 2014 to help stabilize amount of premium payments for high-risk individuals and small group plans
o Will be in effect from 2014-2016
o Will be operated by the state or HHS
• Reinsurance entities will use the money collected to make payments to issuers that insure high-risk individuals in the individual market for any plan year
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REINSURANCE:SET-UP
• Reinsurance entities are tax-exempt, non-profit organizations
o States can choose to operate multiple reinsurance entities or partner together with other states
o States that already have a high-risk pool in place the reinsurance program will replace or expand the high-risk program
• High-risk individuals are determined by using a listing of 50-100 high risk medical conditions that will be developed by HHS
o The ACA indicates that this listing of medical conditions is based on the use of applicable diagnostic and procedure claims codes that indicate an individual has a pre-existing condition or is considered high-risk to insure.
o The American Academy of Actuaries (AAA) has provided several methods for classifying high-risk individuals for developing the list of medical conditions.
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REINSURANCE:CONTRIBUTIONS AND PAYMENTS
• HHS is in charge of collecting and disbursing payments during the calendar year
o Every health insurance issuer/self-insured group plan must contribute to reinsurance program
o Only non- grandfathered issuers in the individual market will be eligible to receive payments
• Issuers contribution will be based off the national per capita formula:
o = National reinsurance pool + Treasury contribution + Administrative costsEstimate of enrollees in plans required to make reinsurance contributions
o Estimated rate for benefit year 2014 will be $5.25 per month
o Issuers will multiply this rate by the average number of enrollees in all their plans to determine their payment amount
• 2014 – 2016 reinsurance payment contributions for all states will equal a total of $25 billion
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REINSURANCE:PAYMENT PARAMETERS
• Payment amounts will be based on the following three payment parameters to be issued annually by HHS:
o Attachment Point – dollar amount that the reinsurance program will begin contributing to the claim amount
o Coinsurance rate – percentage rate that is multiplied by the difference between the attachment point and the reinsurance cap
o Reinsurance cap – dollar amount that the reinsurance program will stop contributing to the claim amount
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RISK CORRIDORS
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RISK CORRIDORS
• In order to control cost, insurers have traditionally sought to primarily insure healthy individuals, who generally require fewer medical services.
• To offset the additional medical costs of high-risk individuals, insurers would increase overall premiums.
• To help minimize this effect and to help ensure premium stabilization as the ACA is enforced, a risk corridor program will be put to use.
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• A temporary program starting in 2014 to help protect individuals against incorrect costs that were estimated for the beginning years of the ACA
o Will be in effect 2014-2016
o Will be operated by HHS
• Will apply to individuals and small groups whose plans are within the Exchange
o If issuers’ QHPs outside of the Exchanges are substantially similar (i.e., provide similar healthcare coverage) to those within the Exchanges, the risk corridors will also apply
• Risk adjustment payment/charges are due 30 days after notice
RISK CORRIDORS:PROGRAM OVERVIEW
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RISK CORRIDORS:PAYMENT METHODOLOGY
HHS makes payment to QHP to minimize losses: HHS receives payment from QHP to spread
gains:
103% of
Target
Amount
<Allowable
Costs>
108% of Target
Amount
92% of
Target
Amount
<Allowable
Costs>
97% of Target
Amount
o HHS will pay QHP an amount equal to 50% of the
allowable costs over 103% but below 108% of the
target amount
o When allowable costs are higher than 108% of the
target amount, HHS will pay the QHP issuer an
amount equal to 2.5% of the target amount plus
80% of the allowable costs over 108% of the target
amount
o A QHP issuer will pay HHS an amount equal to
50% of the difference between 97% of the target
amount and the actual allowable costs value
o When allowable costs are less than 92% of the
target amount, the QHP issuer will pay HHS an
amount equal to 2.5% of the target amount plus
80% of the difference between 92% of the target
amount and the actual allowable costs value
Definitions:
o Allowable costs are equal to the total costs of providing the plan’s benefits, excluding administrative costs.
Allowable costs can be reduced by risk adjustment and reinsurance payments.
o Administrative costs are the non-claim costs for running the QHP. The allowable administrative costs are
capped at 20% of premiums earned (including government-based plan premiums).
o A target amount is equal to total premiums less the plan’s administrative costs. The total premiums can
include premium subsidies from government-based plans.Source: Patient Protection and Affordable Care Act (see pages 211-212) and Federal Register Vol. 77, No. 57 (see page 17251)
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RISK ADJUSTMENT
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RISK ADJUSTMENTS
• Risk adjustment is the process of adjusting payments or premiums to align with the health status of plan member
• A permanent program starting January 2014 to help stabilize financial risk among health insurance issuers
o Will be operated by states or HHS
• Ranks issuers into two categories:
o Low Actuarial Risk (plans will be charged a fee)
o High Actuarial Risk (plans will receive a payment)
• Non-grandfathered individual and small group plans do not need to be enrolled in an Exchange to participate
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RISK ADJUSTMENT:
SET-UP
• States can follow HHS risk adjustment program or create their own
• States can have a third party perform risk adjustment functions
o Third Party must:
Be incorporated
Have experience in dealing with individuals/groups benefit coverage
Not be a health insurance provider
• States can use grant funds received for starting an Exchange to set up their risk adjustment program
o Beginning 2014, states will need to decide what will be the revenue source to finance their program
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RISK ADJUSTMENT: HHS RISK ADJUSTMENT PROGRAM
• HHS risk adjustment program will use the current Medicare Advantage model
• HHS risk adjustment program will be using Hierarchical Condition Category (HCC) classification System in order to predict medical spending and their corresponding diagnoses
• HHS will be using plan liability to perform risk adjustment on the different plan levels.
o However, states can choose between total expenditure or plan liability
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RISK ADJUSTMENT: STATE ALTERNATE RISK ADJUSTMENT
PROGRAM
KEY QUESTIONS TO CREATING A RISK
ADJUSTMENT PROGRAM
RISK ADJUSTMENT CRITERIA
Should the state use a Prospective model or a
Concurrent/Retrospective model for its risk
adjustment program?
Should the state’s risk adjustment program
include pharmacy categories?
Which data fields (e.g., diagnosis fields)
should the state include in its program?
What premiums will be applied to support the
state’s risk adjustment results?
What rating variables will the state employ?
What are the area calculations and
adjustments?
How will the state score members with
insufficient experience?
Criteria is based on the HCC model used in
Medicare Advantage
o Accurately explains cost variation,
o Choose risk factors that are clinically
meaningful to providers,
o Encourage favorable behavior and discourages
unfavorable behavior,
o Uses data that are complete, high quality and
available in a timely fashion,
o Is easy for stakeholders to understand and
implement,
o Provides stable risk scores over time and across
plans, and
o Minimizes administrative burden
Source: State Health Reform Assistance Network Risk Adjustment and Reinsurance - A Work Plan for State Officials (see page 6) and
Analysis of HHS Final Rules On Reinsurance, Risk Corridors, and Risk Adjustment (see page 5)
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RISK ADJUSTMENT: STATE ALTERNATE RISK ADJUSTMENT
PROGRAM
• John Hopkins University created a software states can incorporate into their risk adjustment program
o Software is called ACG-HIE (Adjusted Clinical Group System – Health Insurance Exchange)
o ACG-HIE will calculate the individual risk score by using diagnosis or pharmacy data
o Will be provided to health insurance Exchanges at no cost
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RISK ADJUSTMENT:DATA COLLECTION
• Data will be collected by the state or HHS to determine an individual’s risk score
o Issuers can submit raw data for the state/HHS to determine risk scores or submit self-determined risk scores
o HHS/state privacy and security standards should be implemented
o HIPAA transaction standards must be followed
• All data submitted will need to go through a validation process to determine credibility
• Risk scores will be used to determine payment amounts to high actuarial risk plans
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RISK ADJUSTMENT:RISK SCORES
• In order to determine adjustment payments, individual risk scores will need to be determined by the issuers
• Age, demographics, and any diagnosed illnesses will be used when calculating an individual’s risk score
• To determine an individual risk score each factor would be assigned a weight that is then entered into an algorithm to compute the score.
• Once score is completed it is compared to the population average to determine what that individual’s medical spending is compared to the population average
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RISK ADJUSTMENT:EXAMPLE OF A RISK SCORE
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RISK ADJUSTMENT:PAYMENTS
Two ways HHS has determined to calculate payments:Normalized Premiums
o Divide each plan’s premiums by the plan’s actuarial value. This will normalize plan and states
premiums.
o The amount calculated from above is then weighted by enrollee months for all specific risk
plans. This will create the normalized average premium which will be used as the basis for a
state’s normalized average premiums.
o The plan’s average actuarial risk deviation from the state average actuarial risk is calculated by
multiplying the state’s normalized average premium, the plan’s enrollee month, and the plan’s
actuarial value.
Plan-Specific Premiums
o This method works under the assumption that plan premiums reflect the state average
actuarial risk and that there is a risk adjustment for favorable/adverse selection.
o Actuarial risk deviation multiplied by the aggregated plan premium will give the gross plan
charges and total plan payments that will need to be collected and distributed.
Source: Federal Register Vol. 76 No 136 (see page 41939)
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RISK ADJUSTMENT: ENFORCEMENT
• HHS enforces the risk adjustment programs
• Each year, states will submit a summary report to HHS that includes:
o Average actuarial risk score for each plan
o Corresponding charges/payments
o Any additional detail as required by HHS
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KEY DATES:PREMIUM STABILIZATION PROGRAMS
DATE EVENT
January 2013 HHS Final Notice of Benefit and Payment Parameters for 2014 published
January 15, 2013 HHS will respond to states about their risk adjustment
methodology
March 1, 2013 Deadline for States to publish annual Notice of Benefit and
Payment Parameters for 2014 reinsurance and risk adjustment
programs
April 2013 Issuers will start creating their premiums in order to match the
results of the risk adjustment methodology
January 1, 2014 Premium stabilization programs are in effect
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KEY DATES:PREMIUM STABILIZATION PROGRAMS
PROGRAM PERIOD
Reinsurance Transitional program in effect from 2014 – 2016 calendar years
January 2015 – HHS starts collecting contributions
April 30th following applicable benefit year – Issuers send data to HHS
for payment
June 30th following the applicable benefit year – HHS notifies issuers of
payment amount
November 15th of the benefit year – Issuers must report their annual
enrollment count to HHS
December 15th of the benefit year – HHS will send a notification
showing the amount due
Risk Corridor Transitional program in effect from 2014 - 2016 calendar years
June 30th following applicable benefit year – HHS will notify issuers of
their risk adjustment payments/charges and reinsurance payments for
preceding benefit year
July 31st following applicable benefit year – QHP issuers must submit
data regarding actual premiums received for the preceding benefit year
Risk Adjustment Permanent program that will go in effect January 2014
June 30th following applicable benefit year - a risk adjustment will be
conducted
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