While there is significant uncertainty regarding current healthcare reform legislation, reinsurance and high-risk pool (HRP) programs are likely to play a role in attempting to stabilize individual market enrollment and premiums. In this paper, Milliman consultants Fritz Busch and Paul Houchens examine the following issues related to reinsurance and HRPs.
• The historical uses of HRPs prior to the implementation of the Patient Protection and Affordable Care Act (ACA)
• The role of reinsurance under the ACA, including emerging state-based programs developed using Section 1332 State Innovation Waivers
• The proposed usage of reinsurance and HRP under the American Health Care Act (AHCA), as passed by the House on May 4, 2017
• Considerations for states that are examining the creation and deployment of these types of mechanisms
Effective management of information entered into an External Data Gathering Environment (EDGE) server may save health plans millions of dollars in risk adjustment transfer payments. In this paper, Milliman’s Jason Petroske and Alan Vandagriff outline best practices that issuers should consider as part of their annual EDGE server submission cycles to maximize risk adjustment results.
Here’s an excerpt:
Complete and accurate data is a critical element in capturing—and, more importantly, in receiving compensation for—a health plan’s true level of risk. While navigating the first two years of EDGE submissions, we have mapped out a comprehensive action plan focused on three main areas that any issuer can integrate into its data management framework:
• Establish a robust review and reconciliation process: Create a continuous process for reviewing and reconciling EDGE submissions to internal data sources. Identify key metrics for data completeness and use the test environment to ensure each EDGE submission passes these standards before finalizing in production.
• Prioritize error corrections: Not all errors are created equal, so have a strategic plan for correcting errors and improving data quality. Understand the economics of risk adjustment to help effectively deploy and allocate resources.
• Track data quality and establish benchmarks: Track and benchmark data quality and submission results over time. Look for patterns in errors or outliers from prior submissions as these can be signals of systemic weaknesses in the overall data management process.
Risk adjustment transfer payments continue to have financial implications on insurers in the commercial individual and small group marketplaces. In this analysis, Milliman consultants provide an overview of 2015 transfer payments, comparing them against 2014 results. The authors also explore the following conclusions from their report.
• Total risk adjustment transfer payments at the national level remained at about 10% of premium in the individual market and 6% of premium in the small group market.
• Roughly one in four issuers offering plans in a given state or market in both 2014 and 2015 switched between payer and receiver status.
• Statewide risk scores rose more year-over-year than the movements in market demographics and average plan benefit richness would have suggested.
• Where available, the interim risk adjustment report did not provide a reliable indication of the ultimate value of the 2015 risk score.
A new Milliman analysis shows that the percentage of transitional policy members in a state’s health exchange market appears to correlate with higher medical loss ratios. In the analysis, Milliman consultants Erik Huth and Jason Karcher quantify the effect that transitional policies had on issuers’ 2014 individual market performances and how it may result in 2017 rate increases for transitional states.
Here’s an excerpt:
The table in Figure 3 shows that issuers in transitional states had higher 2014 loss ratios but appear to not have taken large enough 2015 and 2016 rate increases to achieve profitable 2016 loss ratios (assuming 2014 to 2016 significant cost savings are not realized in other ways). Although issuers’ 2017 rate increases will reflect their 2015 experience and updated projections, there is potential for transitional states to see higher rate increases in 2017.
The graph in Figure 4 shows the 2014 ACA loss ratio and the average 2014 to 2016 statewide QHP base rate change for each state. The gray line represents an illustrative 2014 to 2016 rate increase needed to target an 85% 2016 loss ratio given the 2014 loss ratio and assuming a 5% annual claim trend. For example, a state with an 85% 2014 loss ratio would require a 10.25% 2014 to 2016 rate increase to target an 85% 2016 loss ratio (i.e., 5% annual rate increases to cover the 5% annual claim trend to maintain the 85% loss ratio). States well underneath the line indicate a possible need for higher 2017 increases than states closer to the line. Keep in mind that projected 2016 loss ratios are merely illustrative. There are many factors that will affect a state’s overall 2016 loss ratio and required 2016 and 2017 rate increases, such as, but not limited to, changes in experience and statewide morbidity levels, wear-off of pent-up demand, provider contracting, claim trends, population migration and characteristics, and product and issuer mix. These values also represent a statewide composite, while specific issuers could have materially different results than the average.
Risk adjustment may influence insurers’ profitability in the health insurance marketplace, and the volatility of profit results may be highly linked to insurers’ plan size. In this analysis, Milliman consultants examine how risk adjustment might influence profitability patterns and whether those patterns change with the size of a health plan. The authors also address main concepts behind two sets of proposals that have emerged to improve the risk adjustment program, with the aim of reducing financial volatility.
The Patient Protection and Affordable Care Act (ACA) includes risk mitigation programs, also known as the 3 Rs, for individual and small group health insurance markets. The 3 Rs include a permanent risk adjustment program, a transitional reinsurance program for the individual market, and a temporary risk corridor program. The transitional reinsurance and temporary risk corridor programs span from 2014 through 2016, while risk adjustment is a permanent program. The intent of these programs is to mitigate adverse selection and enhance market stability. The 3 Rs also affect financial reporting, and ACA health plan issuers faced many challenges when estimating the financial impact of the 3 Rs on 2014 financial statements. Our research suggests that ACA health plan issuers developed 2014 financial statements in a particularly uncertain environment. In this paper, Daniel Perlman and Dave Liner summarize 2014 3R estimates compared with actual amounts published by the Center for Consumer Information and Insurance Oversight (CCIIO).