ACA Risk Adjustment Worked as Intended in 2018, CMS Reports

CMS recently released a summary report of the Affordable Care Act (ACA) risk adjustment program for the 2018 benefit year, asserting in the report that the data proves the program acted as intended that year.

The document summarized the activities of 572 issuers who joined the risk adjustment program in 2018, a decrease from 654 in 2017. Of those who participated, 552—excluding the high-cost risk pool—received a risk adjustment transfer, while 20 received a default risk adjustment charge in one or more risk pool.

Overall, in 2018, the absolute value of risk adjustment transfers across markets decreased from 2017 slightly, dropping from eight percent to seven percent of total premiums.

“The risk adjustment program is working as intended by more evenly spreading the financial risk carried by issuers that enrolled higher-risk individuals in a particular state market risk pool, thereby protecting issuers against adverse selection and supporting them in offering products that serve all types of consumers,” the report stated.

The report found that risk adjustment transfers as a percent of premiums dropped slightly in comparison to the 2017 benefit year (BY). In BY 2018, risk adjustment transfers were nine percent of premiums in the individual non-catastrophic risk pool and four percent of premiums in the small group risk pool, as opposed to ten and five percent, respectively, in BY 2017.

Furthermore, risk scores remained consistent between BY 2017 and BY 2018. Any changes were minor, such as a 0.4 percent increase in the individual non-catastrophic risk pool, a 0.2 decrease for the small group risk pool, and a slight increase in state average risk scores in individual non-catastrophic risk pools for all metals and most states from BY 2017 to BY 2018.

For individual non-catastrophic risk pools in BY 2018, premiums rose significantly, the report found. From BY 2017 to BY 2018, the premiums increased by around 26 percent, as compared to 2015 to 2016 when the increase was seven percent. 

Premium increases tended to accompany enrollment declines in BY 2018. Individual non-catastrophic risk pool premiums and risk scores depended largely on whether the transaction was on or off the exchange. Except for bronze plans, risk scores in every metal level were higher on-exchange than off-exchange.

The new high-cost risk pool methodology successfully reflected true actuarial risk and protected the 217 issuers with enrollees whose claims exceed $1 million, CMS added. 

The new methodology covered 60 percent of each aggregated claim cost by charging issuers of risk adjustment covered plans a small percentage of their overall premium. That amounted to 0.20 percent of the premium for the individual market and 0.32 percent for the small group market.

The report also found that the amount of paid claims and number of risk adjustment transfers were still linked, with high paid claims being accompanied by risk adjustment payments while low paid claims received a charge. Additionally, the predictability of interim and final risk scores embodied the consistency of data submission processes in 2017 and 2018, as all the states and the District of Columbia are now on board.

These numbers are significant due to the court ruling in February last year which held that CMS could not apply statewide average premiums to assess risk adjustment payments for plan years 2014 to 2018. This rendered CMS unable to redistribute the $10.4 billion ACA risk adjustment payments for plan year 2017.

Since then, CMS has been refining the risk adjustments program. Most recently, in May, CMS reaffirmed its commitment to the new elements of the ACA risk adjustment program by changing how it appeals both the risk adjustment data validation results and the high-cost risk pool transfers.

In the finalized proposal, CMS declared that it would release holdback amounts for BY 2018 regardless of any appeals and, in the event of a successful appeal, would make post-calculation adjustments. The ACA risk adjustment program remains budget-neutral and, as such, adjustments following a successful appeal could result in higher charges or diminished payment in order to equalize the state pool. 

These changes went go into effect for BY 2018 and the summary report on permanent risk adjustment transfers for BY 2019 will reveal whether they function as intended.