TheObama administration could give states more power to manage the Affordable CareAct's risk adjustment program, in a concession to critics who complained thatthe program unfairly penalized certain companies and threatened to destabilizethe exchange system.
Thenew policy, which was issued late on May 6, encourages state insurancecommissioners to seek "local approaches" to easing the impact of therisk adjustment process on small and high-growth health plans. That language appearsto open the door to allowing states to artificially limit the amounts thatcompanies might have to pay into the program each year.
"HHShas had a number of discussions with issuers and State regulators on ways tohelp ease issuers' transition to the new health insurance markets and theeffects of unanticipated risk adjustment charge amounts," the Departmentof Health and Human Services said in a notice postedto the Federal Register. "We encourage States to examine whether any localapproaches, under State legal authority, are warranted to help ease thistransition to new health insurance markets."
Thedepartment's proposed rulealso loosened regulations on consumer operated and oriented health plans in abid to make it easier for them to find outside funding. Co-ops have exploredpartnerships with other plans and hospital groups and solicited investors toboost their financial resources, executives have said in recent months. Thusfar, however, they have struggled to navigate special restrictions placed onthe federally funded nonprofits.
Healthinsurers and some state regulators have, for months, pushed for reforms to the risk adjustment program. TheACA-created program aims to stabilize the state exchanges by transferring moneyfrom insurers with healthier-than-average customers to competitors withriskier-than average customers.
Buta coalition of small health plans has argued that the formula determining those transfersdisproportionately penalizes fast-growing companies, and that the absence of acap on any potential payouts makes it nearly impossible for insurers toanticipate how much they could owe.
Surpriserisk adjustment charges in 2015 played a central role in the of a string of co-ops. It also crippledsmall independent insurers like Florida's Preferred Medical Plan Inc., which paid $97.1 million,or more than a quarter of its 2014 earned premium, into the risk adjustmentpool.
Thefederal government opted not to make significant changes to the program'sformula until at least 2018. But state regulators in recent months warmed to anindustry proposal allowing them to limit the amount that insurers contribute toor receive from the risk adjustment pool. Under a so-called "reducedvolatility" plan, insurance commissioners could survey the risk adjustmentresults each year and then proportionally reduce all payments and receivablesacross the board.
TheNAIC is still discussing how exactly the system would work without encroachingon the federal government's territory. The risk adjustment program isadministered by HHS' Centers for Medicare and Medicaid Services in nearly everystate, meaning any state-level changes would likely have to be made after thefederal government finalizes its risk adjustment results.
YetHHS' openness to reforms could give regulators a boost of confidence.Evergreen Health CooperativeInc. CEO Peter Beilenson said in a May 3 interview that he expectedMaryland Insurance Commissioner Alfred Redmer Jr. to officially announce plansto limit risk adjustment results on his state exchange. Redmer's order couldcome in the next few weeks, Beilenson said.
"We'revery hopeful that the commissioner's order will be able to stand," hesaid. "Every indication is that he's going to issue an order capping [riskadjustment] at a certain percentage of premium."
Aspokesman for Redmer said in an email that the department is "makingprogress," but that nothing would be resolved before the end of May.
Ifinsurance commissioners do take advantage of this flexibility in the riskadjustment program, it would represent a victory for the handful of companiesthat originally developed the concept of state-level limits. Massachusetts'co-op, Minuteman HealthInc., New MexicoHealth Connections, independent insurer and theNational Alliance of State Health CO-OPs have taken the lead on reforming riskadjustment, in addition to Beilenson's Evergreen Health.
"Wealso applaud CMS for acknowledging that states have the authority to considerlocal market solutions to address the impacts of an unpredictable riskadjustment program on small and rapidly growing health insurers, includingCO-OPs," NASHCO CEO Kelly Crowe said in a statement. "We look forwardto working with the individual state regulators to find equitable solutions tothis challenge as CMS considers broader changes to risk adjustment."