posted by Alicia Caramenico
on August 26, 2016
There has been much focus in recent days on the topic of premium stabilization programs in the Exchange market. Premium stabilization programs, especially risk adjustment, are critical tools for keeping the health insurance marketplace competitive and sustainable.
So, what is it? Let’s start at the beginning. The Affordable Care Act created three risk mitigation programs, also known as the “3Rs”: reinsurance, risk Corridors and risk Adjustment, to help create a stable, affordable market for consumers.
Risk adjustment is designed to spread risk among health plans to help prevent “adverse selection” – or, in simpler terms, risk adjustment helps protect patients who need care. In the Exchange market, the risk adjustment program spreads the risk across all health plans in a state. Health plans that enroll higher-cost and higher-risk patients receive payments from health plans that enroll lower-risk populations. This creates a more level playing field in the marketplace so that market competition is based on price, quality, and efficiency.
Medicare Part D and Medicare Advantage have successfully implemented risk adjustment programs for years – and have created markets noted for strong competition and consumer choices.
This makes it even more important for policymakers to strengthen the risk adjustment program and further protect consumers. Some incremental changes that would make the risk-adjustment program more effective would be to adopt an adjustment factor for partial year enrollees, which will help account for the costs of mid-year changes and short-term enrollees; incorporate prescription drug utilization data into the model; and revisit the reimbursement weights for high-cost conditions.
A stronger risk adjustment program will ensure a stable and predictable environment for consumers purchasing coverage. AHIP will continue to work with all parties to help strengthen this program and ensure consumers have access to affordable and high-quality health coverage.
For more information on the premium stabilization programs, read our issue brief.