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State insurance regulators to discuss ACA risk adjustment reforms in private meeting

Stateinsurance regulators will consider the potential for reforming the AffordableCare Act's risk adjustment program during an April 4 closed meeting, New MexicoInsurance Superintendent John Franchini said in an interview.

TheNAIC's new Co-Op Solvency and Receivership Subgroup is expected to tackle theissue, focusing on whether the states have the authority to make changes to aprogram largely run by the federal government. Franchini and Maryland InsuranceCommissioner Alfred Redmer Jr. have led the push for reforms over the past several months, arguingthat the risk adjustment formula is flawed and threatens to drive small healthinsurers off of state exchanges and perhaps even out of business.

Franchiniand Redmer are championing a plan to install a so-called circuit breakerlimiting the amount any insurer would have to pay into the risk adjustmentprogram to 2% of annual premium revenue, in a bid to make the potential payoutsmore predictable. The proposal has the support of a coalition of smallinsurers, which have lobbied state regulators to step in after federalofficials refused to make any changes to the program until at least 2018.

Thesubgroup has invited National Alliance of State Health CO-OPs CEO Kelly Croweand Board Chair and New MexicoHealth Connections CEO Martin Hickey to the private meeting,multiple sources familiar with the agenda said. Both are also representativesof industry coalition Consumers for Health Options, Insurance Coverage inExchanges in States, or CHOICES, which has taken the lead on the industry'seffort to reform the risk adjustment program.

CHOICESoriginally consistedof NASHCO, a handful of consumer operated and oriented plans, and two smallprivate health insurers. But the group has expanded in recent weeks. A numberof additional private plans, including high-profile startup , joined an April1 conference call to discuss CHOICES' risk adjustment reform strategy, twosources familiar with the matter said. The Google Inc.-backed Oscar paid$8.1 million of risk adjustment charges in 2015 and has reserved nearly 24% ofits premium for another potential payout in 2016, according to its regulatoryfilings.

Arepresentative for Oscar did not immediately respond to a request for comment.

CHOICESon the conference call decided to contract health care consultancy LeavittPartners to prepare a new proposal focused on the mechanics of how regulatorscould install a state-level circuit breaker after the federal governmentreleases its risk adjustment results this summer, sources familiar with theplan said. Hickey and Crowe are expected to pitch regulators on installingcircuit breakers, but it is unclear whether they will present the officialLeavitt Partners-developed proposal.

Instatements to S&P Global Market Intelligence during the past few months,the federal government maintained that the risk adjustment program is fair anddoes not need to be restructured, but that it is willing to work withregulators and companies on smaller changes starting in 2018.

Anumber of state regulators are nevertheless eager to alter the risk adjustmentprogram immediately, warning that insurers will likely hike their premiums for2017 to account for the potential of a risk adjustment payout. But theinsurance commissioners are wary of angering the federal government. The U.S.Department of Health and Human Services administers the program in every stateexcept Massachusetts, likely giving it authority over any changes.

Theagency told insurance commissioners that the states could take overadministration of risk adjustment in 2017 and reform it then, Franchini said,but that would also mean taking on the program's costs and technicalobligations. The states likely cannot handle that burden, he added, beyondtheir general unwillingness to wait another year. Instead, Franchini pledged toremain vocal on theissue in hopes of forcing HHS to clear a path for more immediate reforms.

"We'rekeeping the pressure on them so that they can't hide," he said.