Risk-Sharing Programs Helped Equalize Impact of Costs Among Health Insurers, AHRQ Study Finds

Federal programs designed to equalize payments for health insurance companies’ costs were “relatively well targeted” in the two years following introduction of the Affordable Care Act’s (ACA) marketplaces, according to an AHRQ study in the April issue of Health Affairs. Because the ACA prevents insurers from varying coverage based on applicants’ health status, the law includes two mechanisms to equalize the impact of differences in enrollees’ health risks. A risk-adjustment program was designed to transfer funds from plans with lower risk enrollees to plans with higher risk enrollees. In addition, the ACA’s temporary reinsurance program, in place from 2014 to 2016, partially compensated insurance plans for higher cost enrollees to provide a cushion for plans in the early years of the marketplaces. AHRQ researchers found that prior to these payments, claims (not including administrative expenses) exceeded premium revenues by $90 to $397 per enrollee per month for the 30 percent of insurers with the highest claims costs. The effect was reversed after these payments were included, with revenues exceeding claims costs by $0 to $49 per month for the same category of insurers. The findings may shed light on how risk-sharing programs can address risk selection among insurers, the authors concluded. Access the abstract.

Risk Adjustment, Reinsurance Improved Financial Outcomes For Individual Market Insurers With The Highest Claims

+Author Affiliations

¹Paul D. Jacobs (paul.jacobs@ahrq.hhs.gov) is a service fellow in the Center for Financing, Access, and Cost Trends at the Agency for Healthcare Research and Quality, in Rockville, Maryland.
²Michael L. Cohen is senior adviser for data strategy and program integrity to the Marketplace CEO and director of the Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services, in Washington, D.C.
³Patricia Keenan is a senior researcher in the Center for Financing, Access, and Cost Trends at the Agency for Healthcare Research and Quality.

↵*Corresponding author

Abstract

The Affordable Care Act (ACA) reformed the individual health insurance market. Because insurers can no longer vary their offers of coverage based on applicants’ health status, the ACA established a risk adjustment program to equalize health-related cost differences across plans. The ACA also established a temporary reinsurance program to subsidize high-cost claims. To assess the impact of these programs, we compared revenues to claims costs for insurers in the individual market during the first two years of ACA implementation (2014 and 2015), before and after the inclusion of risk adjustment and reinsurance payments. Before these payments were included, for the 30 percent of insurers with the highest claims costs, claims (not including administrative expenses) exceeded premium revenues by $90–$397 per enrollee per month. The effect was reversed after these payments were included, with revenues exceeding claims costs by $0–$49 per month. The risk adjustment and reinsurance programs were relatively well targeted in the first two years. While there is ongoing discussion regarding the future of the ACA, our findings can shed light on how risk-sharing programs can address risk selection among insurers—a pervasive issue in all health insurance markets.