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Premium Stabilization Programs: How Reinsurance, Risk Corridors, And Risk Adjustment Protect Consumers

posted by Federal Affairs

on October 1, 2015

Key Takeaways

3 Letter RsThree interconnected risk mitigation programs – reinsurance, risk corridors, and risk adjustment – protect consumers from market volatility and help keep coverage affordable.

part DThese programs were used successfully in Medicare Part D to help create a thriving market noted for its highly competitive nature and choices for consumers.

Stock market going up and downChanges to how these programs work will disrupt the market and lead to higher costs for consumers

Background

Consumers benefit when the cost of health coverage is stable. Three programs are in place to help protect consumers by stabilizing premiums in the reformed health insurance marketplace created by the Affordable Care Act (ACA). Two of these programs (Reinsurance and Risk Corridors) provide much needed premium stability for consumers in the first three years of the law’s implementation. The third program (Risk Adjustment) is designed to permanently protect against adverse selection.

Together, these three programs—commonly known as the “3Rs”—have helped create a more stable and predictable environment for consumers purchasing health insurance coverage. The American Academy of Actuaries noted that the 3Rs facilitate “competition based on efficient care management and quality rather than risk selection.”1 Similar programs successfully mitigated risk among private plans offered under Medicare. The 3Rs serve the same purpose for the ACA’s market reforms by creating confidence in the new marketplaces and stability in premiums for consumers.