The Patient Protection and Affordable Care Act has set up a complicated, three-part program that could change how small-group carriers look at risk.
Jason Siegel, an actuary in the Brookfield, Wis., office of Milliman, has tried to analyze the effects of the Three Rs – a temporary reinsurance program, a temporary risk corridor program, and a permanent risk adjustment program – in a paper published by the Society of Actuaries.
The program “will likely have a material impact on the financial results of many insurance companies,” Siegel said. “It exposes carriers to new types of risks, and, in some cases, can turn business strategies that were once viable upside down.”
Siegel noted the permanent risk adjustment program, is comparable to one that’s been part of Medicare Advantage for years.
But developing a comparable program for the commercial individual and small-group markets – to protect commercial carriers that end up assuming more than their fair share of enrollees with high claims – is complicated, because those enrollees tend to be younger and healthier, and distinguishing true high-risk enrollees from the others could be more difficult, Siegel wrote.
Over the next three years, when the temporary reinsurance program will be in operation, plans might have an incentive to enroll the very sickest consumers, Siegel noted.
Because a plan can get both risk adjustment money and reinsurance payments for “certain large claims, the overlapping risk program design can cause total reimbursements for costly members to partially double count large claims,” Siegel said.
Plans will have to make sure providers code all relevant diagnoses as accurately as possible, to ensure they get credit for all relevant risk, Siegel added.