Affordable Care Act (ACA) updates proposed by the Centers for Medicare & Medicaid Services (CMS) could help health plans more accurately calculate risk.
CMS has proposed changes to how plans account for commercial health exchange members who have not been enrolled for a full 12 months, as well as the inclusion of prescription drug data.
“Beginning in 2017, the proposed policies will take important steps to strengthen one of the Marketplace’s key tools for protecting consumers’ access to high-quality, affordable coverage options: the risk adjustment program. The rule introduces changes that will make risk adjustment even more effective at pooling risk, allowing issuers to focus on meeting the needs of consumers,” states a CMS press release on new ACA standards for 2018.
New provisions for partial-year enrollees would take effect in 2017, while the use of prescription drug utilization data and policies regarding transfers that will spread the risk of high-cost enrollees would be implemented in 2018.
“All of these changes serve as attempts to make it more economically sound for insurance companies to be in the market, to get more people into the exchanges (roughly 10% of Americans are still uncovered), and to eliminate loopholes that allow people to game the exchanges,” states a Business Insider article on changes to Obamacare.
Here is a closer look at what the latest CMS updates to the ACA mean for health plans:
1. Partial-year enrollees
CMS has responded to plans’ reports of higher-than-expected claims costs for partial-year enrollees by refining its risk adjustment model to more fully account for risk so that a plan’s risk score may not be lower than it should be.
“We found that actuarial risk for all adult enrollees with short enrollment periods tends to be slightly [underpredicted], and for adult enrollees with full enrollment periods (12 months) tends to be [overpredicted] in our methodology,” the proposed rule by CMS states. “One potential explanation for these results is that because risk adjustment is calculated on a [per-member-per-month] basis, the model predicts costs for chronic conditions, which are often spread more evenly over time, better than costs for sudden acute events, which are often concentrated in a small number of months, when the enrollment is only for part of the year.”
CMS has proposed to weight risk factors based on the number of enrollment months, beginning in 2017.
2. Prescription drug utilization
Plans have told CMS that drug information can indicate health risk in cases where diagnoses may be missing and provide perspective on the severity of an illness. Drug data can also be available sooner than diagnoses, plans have argued.
CMS has proposed incorporating “a small number of prescription drugs in the risk adjustment model for the 2018 benefit year” in response to public comments.
“The proposed change will likely be seen as a win by insurers and drugmakers, who have argued that insurance plans will be more accurately compensated based on the health status of their enrollees if the cost of prescription drugs is taken into account,” states a Morning Consult article on CMS plans to add prescription drug data to 2018 risk adjustment.
3. High-cost risk pooling
CMS has acknowledged that its risk adjustment model may underpredict costs for high-cost enrollees because predicted plan liabilities reflect the average costs for individuals with the set of demographic characteristics and diagnoses included in the model.
“To account for the incorporation of high-cost risk in the risk adjustment model, we propose to adjust the risk adjustment model for high-cost enrollees by excluding a percentage of costs above a certain threshold level in the calculation of enrollee-level plan liability risk scores so that risk adjustment factors are calculated without the high-cost risk,” states the rule proposed by CMS. “Secondly, to account for the issuers’ actuarial risk for costs associated with the high-cost enrollees, we would apply an adjustment for each issuer of a [risk-adjustment-covered] plan to account for a percentage of all high-cost enrollees’ costs above the threshold.”
CMS hopes that the changes will discourage plans from engaging in risk selection in order to avoid high-cost enrollees. It also wants “to better account for high-cost enrollees so that transfers resulting from the risk adjustment methodology from [high-actuarial-risk] plans to [low-actuarial-risk] plans better reflect the actuarial risk of [risk-adjustment-covered] plans in a market.”
Regulators continue to refine rules for exchange plans as they seek to expand healthcare coverage. For health plans, the latest updates to the ACA by CMS reflect its efforts to more accurately account for risk while expanding coverage.