On Tuesday, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that enables the federal government to resume issuing $10.4 billion in risk adjustment payments. This decision followed a brief freeze that was driven by a district court ruling invalidating the statewide average premium used to calculate the risk adjustment transfer formula. The response was expected after the White House's Office of Management and Budget (OMB) posted that it had received a ruling on the risk payments last week. Rebecca Darnall, Cotiviti Commercial Risk Adjustment product director, breaks down the final rule, as well as pending changes to the high-cost risk pool (HCRP) program.
What the final rule means
The final rule supports the risk adjustment methodology previously established for the 2017 benefit year. CMS stated that it sought comments on statewide average premium usage in the risk adjustment methodology in the 2019 Advance Payment Notice, and finalized its approach in the Final Payment Notice released in April.
After CMS expressed its disappointment in the court ruling, hoping for a swift resolution, the Department of Health and Human Services (HHS) skipped the proposed rule stage to expedite the process. Many issuers expressed concerns about having to withdraw from the markets due to a significant financial impact if payments were not distributed in October. Indeed, the 2017 risk adjustment summary data indicates that 15 percent of issuers exited the market last year, and an estimated 26 percent have already departed in 2018.
As part of the Affordable Care Act (ACA), these risk adjustment payments move money from health insurance plans that serve healthier populations to those with sicker members. Therefore, they are crucial to the stability of the market overall, ensuring that millions of Americans can continue to get their healthcare coverage via small businesses or purchase it themselves.
The 2017 Payment Summary showed that state-level average premiums for the individual risk pool increased by 21 percent—three times more than in previous years. Some states are seriously deliberating enacting a state-level individual mandate, requiring their residents to enroll in an insurance plan or pay a financial penalty in hopes of stabilizing the insurance market, similar to measures passed in Massachusetts and New Jersey. A case study by The Commonwealth Fund concluded that every state passing its own mandate could reduce the number of uninsured by 3.9 million and drop premiums by an average of 12 percent, reducing the uncompensated care cost borne by providers by $11.4 billion nationally.
HCRP adjustments: what’s changing
CMS also announced Tuesday the release of two new EDGE reports that will be available to issuers in October on high-cost risk pool (HCRP) adjustments. The agency implemented the HCRP program as part of the risk adjustment program beginning with this benefit year (2018), and it was finalized in the 2018 Payment Notice to account for the incorporation of risk associated with high-cost enrollees in the risk adjustment model. This program is designed to partially reimburse issuers that incurred high claims costs for enrollees above a $1 million threshold (attachment point) at a 60 percent coinsurance rate.
The incurred cost will be aggregated for both the individual (including catastrophic, non-catastrophic, and merged market plans) and small group markets, and applied to the total risk transfer amount in that market. This is different than the reinsurance program implemented from 2014–2016, which only included the individual market. CMS has set the thresholds at a level that it feels would continue to incentivize issuers to control costs while improving the risk prediction of the risk adjustment model. It also notes the addition of this program will mitigate the risk of issuers “cherry picking” their members by providing compensation for exceptionally high-cost members, as well as exiting the market. However, issuers have stated the $1 million threshold may be too high to have any meaningful impact on premiums or provide market stability for the 2018 benefit year.