Crunching the numbers as ACA risk adjustment transfer payments are put on hold

On Monday, the Centers for Medicare & Medicaid Services (CMS) released the health plan-specific 2017 benefit year risk adjustment transfer payments. As part of the Affordable Care Act (ACA), these payments move money from health plans that serve healthier populations to those with sicker members. Based on last year’s results, these transfers total $10.4 billion this year ($5.2 billion in payments and $5.2 billion in charges). However, the government announced Saturday that it is holding off on these risk adjustment payments due to a New Mexico district court ruling that the statewide average premium used in the risk adjustment transfer formula is invalid.

The payments are not due to be made until October, so there is still time for the matter to be resolved. However, the introduction of additional uncertainty to an already-fragile ACA marketplace has the potential to impact millions of Americans who get their healthcare coverage via small businesses or purchase it themselves.

Likely due to the discontinued payments of Cost Sharing Reduction (CSR) and reinsurance, the 2017 benefit year data indicated that state average premiums for the individual risk pool increased by 21 percent—three times more than in previous years. With the removal of the individual mandate to purchase health insurance, payers have already factored in the cost of the departure of their healthier members into their 2019 premiums. If health plans participating in these marketplaces do not receive their 2017 risk adjustment payments, many will need to look to increase premiums even more heading into 2019.

Crunching the numbers: what changed from 2016 to 2017? 

According to CMS in its preliminary analysis of the risk adjustment transfers for the 2017 benefit year, the risk adjustment methodology continues to compensate issuers that enrolled higher risk individuals and to guard against adverse selection within a market and within a state. A total of 654 issuers participated in the risk adjustment program for the 2017 benefit year, down almost 15 percent from 767 issuers in the 2016 benefit year. Transfers for 2017 decreased slightly compared to 2016. The absolute value of risk adjustment transfers as a percent of premiums decreased to 10 percent of premiums in the individual non-catastrophic risk pool, and decreased to 5 percent of premiums in the small group risk pool, primarily due to a shift in healthy enrollees from platinum and gold plans to silver and bronze. 

Most states saw a decline in their member risk scores, approximately 5 percent in the individual non-catastrophic risk pool and 6 percent in the small group risk pool. But due to the changes in the risk adjustment modeling from 2016 to 2017, this measurement can be misleading, giving the appearance that less healthy enrollees have left the individual marketplace.

The amount of total claims paid by issuers continued to correlate well with the risk adjustment transfers. Overall, this successfully affords protection against adverse selection for insurers and permits them to offer health insurance products that serve a full range of consumers.

For the 2017 benefit year, the top five recipients of transfer dollars are: 

1. Blue Cross Blue Shield of California ($696 million)
2. Health Care Service Corporation (HCSC) ($640 million)
3. Blue Cross and Blue Shield of Florida ($618 million)
4. Anthem, Inc. ($522 million)
5. UnitedHealth Group, Inc. ($163 million)

Meanwhile, the top five payers of transfer dollars are: 

1. Kaiser Permanente (-$928 million)
2. Molina Healthcare (-$853 million)
3. Centene Corporation (-$607 million)
4. Cigna (-$169 million)
5. North Shore-LIJ Health System (-$121 million)

Year over year, the top five payers who saw a decrease in transfer dollars received (or increase in transfer dollars paid) are: 

1. UnitedHealth Group (-$316 million)
2. Molina Healthcare (-$310 million)
3. Kaiser Permanente (-$263 million)
4. Centene Corporation (-$251 million)
5. Humana, Inc. (-$201 million)

And the top five payers who saw an increase in transfer dollars received (or decrease in transfer dollars paid) are: 

1. Aetna ($599 million)
2. Health Care Service Corporation (HCSC) ($488 million)
3. Blue Shield of California ($325 million)
4. Blue Cross and Blue Shield of Florida ($150 million)
5. CareFirst ($59 million)

When it comes to how issuers’ payments into and receipts from the commercial risk adjustment program vary year by year, two plans are particularly interesting. For the 2016 benefit year, Aetna paid out almost $498 million. In contrast, the insurer is estimated to receive approximately $101 million in benefit year 2017, increasing by almost $599 million from benefit year 2016. Meanwhile, UnitedHealth’s risk transfer dollars received dropped 34 percent from 2016, decreasing from $480 million to $163 million. This type of volatility between years will likely raise questions around how the issuer’s member risk profile could change that drastically in a single year.

Key takeaways for commercial health plans 

How should the commercial market interpret this data? 

• While big dollars are eye-catching, comparing your organization’s results to the other issuers in your particular markets on a per-member per-month basis offers a more accurate assessment of how you are performing.
• Remember that the big transfer numbers are a result of several factors, not the least of which is issuers’ excellence in performing underlying data submittal and risk adjustment enhancement activities. Rigorous HCC analytics and medical record coding can drive risk score gains, and even small changes in risk scores can have a large impact on the formula and associated transfer amount. Even though risk adjustment seems to be doing its job, there’s no question that if plans invest more effort, they see better results.
• To be accurately paid under the latest payment formula, plans need to accurately submit as close as possible to 100 percent of their claims. The 90 percent threshold set by CMS is a minimum target, and every issuer should benchmark to reach a higher level, especially year over year. 

Ensuring accurate and appropriate fund transfer in commercial risk adjustment is complex, requiring resources and expertise to aggregate, interpret, process, and submit critical data in a timely manner. Learn how Cotiviti empowers health plans to succeed at the complex task of commercial risk adjustment.