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A commonsense step to help the individual health insurance market

By Brian Blase
The Hill, July 30, 2020


A little-known program created by the Affordable Care Act (ACA) continues to cause problems in the individual and small group health insurance markets. The program involves shared risk payments among insurers, and it must be reformed to expand choices and lower premiums.
 
Under the ACA, health insurers are required to offer coverage to every applicant, regardless of their underlying health conditions, and they must charge healthy applicants the same premiums as those who are sicker. 

By itself, this would mean insurers would make profits on the healthy and lose money on the sick. To prevent insurers from designing coverage to attract only the healthy, the ACA’s architects included a risk-adjustment program. 
 
But the program has had a perverse results:  It gives insurers financial incentives to enroll people with certain medical conditions so they can reap the large risk-adjustment payments on their behalf and to avoid the healthy for whom they must pay large risk adjustment charges.
 
Insurers build into their premiums a big cushion because of the uncertainties of the risk payments they may be forced to make to competitors.  The program therefore has had the unintended consequence of driving premiums higher and forcing some insurers out of the markets. The Trump administration should reform it. 
 
Democrats and Republicans disagree on many health policy issues, but both parties want the individual and small group health insurance markets to be successful. While other reforms are needed to repair them, fixing the ACA’s risk-adjustment process represents a positive and commonsense step and one the Center for Medicare & Medicaid Services (CMS) can undertake reforms through the normal regulatory process.    
                                         
  • CMS must reduce the amount of money transferred through the program and recalibrate the formula values so insurers are not discouraged from enrolling the young and healthy people needed for the markets to work best. 
     
  • CMS should also release more and better data so health plans can more accurately model how risk adjustment will affect them. 
     
  • Finally, CMS needs to commit to improved oversight to ensure that insurers are not inappropriately gaming the formula. 
 
This op-ed is adapted from Brian’s new paper for the Galen Institute, “The ACA’s Risk-Adjustment Program Needs Adjusting,” that takes a deep dive into the ACA’s risk adjustment program and finds that it is both driving up premiums in the individual and small group markets and reducing competition.
 


Read the full op-ed in The Hill

 

Copyright © 2020 Galen Institute, All rights reserved.


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