The Centers for Medicare & Medicaid Services (CMS) recently released the health plan-specific 2018 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 ($5.2 billion in payments and $5.2 billion in charges), nearly the exact amount as the 2017 benefit year. Here, we break down the data, examine what’s changed from year to year, and offer Cotiviti’s takeaways for commercial plans looking for better results for the next payment year.
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HHS-Risk Adjustment Data Validation (HRADV)
CMS released an additional report on August 1 breaking down the first enforced non-pilot risk adjustment data validation adjustments to risk adjustment payment transfers. HRADV was created to ensure the integrity of risk adjustment programs operated by the Department of Health and Human Services (HHS), as well as to validate the accuracy of data submitted by issuers used for transfer calculations.
Following HRADV, 40 percent of the 146 state market risk pools had their risk transfers adjusted in the 2018 benefit year, while 19 percent had their 2017 benefit year risk transfers adjusted. Meanwhile, seven payers saw their risk transfer payments decrease by more than $2 million each, including Cigna and UnitedHealth Group, both of which took a $3.6 million hit. Charges incurred from HRADV are being collected this month.
High-cost risk pool (HCRP)
The high-cost risk pool was one of a few impactful changes in the 2018 benefit year. This program was created in a similar vein to the previous “reinsurance” program, helping ensure that risk adjustment transfers better reflect the average actuarial risk while also providing protection to issuers with high-cost enrollees and reducing the risk of “cherry picking” members. 38 percent of issuers in total received a high-cost risk pool payment.
Similar to reinsurance, the HCRP reimburses issuers for 60 percent of an enrollee’s aggregated paid claims costs exceeding $1 million. This program resulted in paying out $178 million in the individual market and $193 million in the small market. Overall, Anthem Blue Cross, Kaiser Permanente, and Blue Shield of California received the bulk of these funds at approximately $45 million each, with UnitedHealth Group and HCSC close behind.
What changed from 2017 to 2018?
According to CMS risk adjustment transfers for the 2018 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 572 issuers participated in the risk adjustment program for the 2018 benefit year, down almost 13 percent from 654 issuers in 2017 and 25 percent from 2016. Blue Plans continue to be the greatest beneficiaries in the individual market, receiving $2.4 billion in total transfer payments in the individual market and $287 million in the small group market.
The absolute value of risk adjustment transfers decreased to 9 percent of premiums in the individual non-catastrophic risk pool, and decreased to 4 percent of premiums in the small group risk pool. This is very similar to the previous year, but for different reasons. In the 2017 benefit year, this change was primarily due to a shift in healthy enrollees from platinum and gold plans to silver and bronze, but the premium drop for 2018 was a result of the 14 percent administrative cost reduction to the statewide average premium factor in the state transfer formula.
Most states saw small changes in their member risk scores, with an approximately 0.2 percent decrease in the small group risk pool and an increase of 0.4 percent in the individual non-catastrophic risk pool. CMS estimated that the risk adjustment model updates and recalibration from the previous year resulted in a decrease in issuers’ risk scores by 7 percent.
For the 2018 benefit year, the top five recipients of transfer dollars are:
- Blue Shield of California ($929 million)
- Health Care Service Corporation ($618 million)
- Blue Cross and Blue Shield of Florida ($528 million)
- Anthem ($399 million)
- CareFirst ($192 million)
Meanwhile, the top five payers of transfer dollars are:
- Kaiser Permanente (-$1.3 billion)
- Centene Corporation (-$607 million)
- Molina Healthcare (-$373 million)
- Oscar Health (-$239 million)
- Cigna (-$152 million)
Year over year, the top five payers who saw a decrease in transfer dollars received (or increase in transfer dollars paid) before HRADV adjustments are:
- Kaiser Permanente (-$381 million)
- Oscar Health (-$166 million)
- UnitedHealth Group (-$129 million)
- Anthem (-$122 million)
- Blue Cross and Blue Shield of Florida (-$90 million)
And the top five payers who saw an increase in transfer dollars received (or decrease in transfer dollars paid) before HRADV adjustments are:
- Molina Healthcare ($480 million)
- Blue Shield of California ($233 million)
- North Shore-LIJ Health System ($106 million)
- Horizon Blue Cross Blue Shield of New Jersey ($90 million)
- Community Health Choice, Inc. ($76 million)
Key takeaways for commercial health plans
What should the commercial market do with this data? Consider these next steps:
- 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 high 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. There’s no question that if plans invest more effort, they see better results.
- HRADV audits will continue to require extensive preparation. To better prepare, plans should continue to have a proactive approach to validating their data and its sources. Many plans have debated conducting an internal audit or mock RADV since it is labor intensive, incurs additional administrative cost, and does not guarantee that the validated diagnoses will be the same ones chosen in an HRADV. While this may be true, it still helps identify risks and could minimize any potential risk to a health plan’s future financial stability.
- 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.
The core of a successful risk adjustment program is fully understanding your members as well as the various data exchanges that take place along the risk adjustment continuum. Download our checklist for 10 tips to help you optimize risk adjustment revenues while maintaining compliance.