UPDATE: In a final rule posted July 24, the Trump administration announced it will resume risk-adjustment payments to insurers.1 The Centers for Medicare and Medicaid Services will pay out $10.4 billion to insurers for the 2017 benefit year.2 CMS officials cited concerns from insurers as the reason for this reversal; many had responded that should payments be ceased, they would have to withdraw from the market or become insolvent.3
Originally published July 17, 2018
- What are risk-adjustment payments?
- Why have they been suspended?
- Will the action truly have a negative impact on people like you?
Risk-adjustment payments explained
When the Affordable Care Act (ACA) took effect in 2014, the government launched premium stabilization programs, including the risk-adjustment program, to help protect consumers and ensure access to affordable health insurance coverage as well as “reduce incentives for health insurance issuers to avoid enrolling sicker people.5
In other words: Encourage more insurers to participate in the ACA exchanges where they would enroll a variety of individuals.6
Prior to the ACA, companies could charge you more or deny you coverage based on your health history. That is no longer the case, and all major medical insurance is guaranteed issue, which means insurers can no longer decide who they will accept and deny.
As a result, some companies take on more risk than others depending on who has enrolled in their plans.
As Kaiser Health News explains, here’s how the risk-adjustment program works: The federal government collects money from insurers who enroll healthier people and uses that money to pay those with sicker enrollees.7
Why suspend the payments?
The Trump administration’s decision to suspend risk-adjustment payments stems from a February 2018 ruling by the Federal District Court in New Mexico, which decided the formula used to calculate the payments from 2014 to 2018 was flawed.8
This fall, insurers were to receive $10.4 billion in risk-adjustment payments for the 2017 benefit year, and now they are being withheld.9
Insurance companies and the national association that represents them (America’s Health Insurance Plans) criticized the decision, arguing it could “significantly increase 2019 premiums for millions,” result in “far fewer health plan choices” and “create more uncertainty.”12
The Centers for Medicare and Medicaid Services, which administers the program, has asked the New Mexico district court to reconsider.13
Will the freeze make your ACA premium skyrocket?
As insurers set 2019 premium rates and finalize plan offerings from now until open enrollment, which begins November 1, this move will no doubt become a factor in their decision making. Why?
As NPR health correspondent Alison Kodjak recently explained, the decision creates uncertainty for health insurance companies and they may react by raising prices as a means to prevent losing money.14
How exactly insurers respond may depend on which years the government plans to withhold risk-adjustment payments for: 2017 and 2018 alone, or 2019 as well.15
Any potential rate hikes would largely be felt by those without access to income-based subsidies.16 With the individual mandate penalty being repealed in 2019, healthier people may opt out of major medical insurance altogether and consider alternative coverage options such as short-term health insurance or hospital plans.
Of course, how the risk-adjustment payment freeze announcement will impact rates and availability has yet to be seen. The Wall Street Journal reported that company filings as of early July showed some insurers expanding ACA plan offerings to new regions for 2019 (a shift from years past).17
Final ACA plans and rates will be available November 1 when 2019 open enrollment begins.