Executive Summary
A key element of the Affordable Care Act (ACA) is the permanent risk adjustment (RA) program. The risk adjustment program compensates individual and small group issuers that enroll higher than average risk enrollees by transferring funds to them from issuers that enroll lower than average risk enrollees. By compensating plans that disproportionately enroll higher-cost and higher-risk individuals, the ACA risk adjustment program aims to preserve a level playing field among competing plans and mitigate the potential for adverse selection in the individual and small group markets. The goal of RA is to remove incentives for issuers in the individual and small group markets to avoid enrolling people with higher cost health conditions. It is instead designed to encourage issuers to compete on quality, remove cost inefficiencies and offer products that meet the health care needs of all populations. The risk adjustment program works in tandem with the ACA insurance market reforms to create market stability while ensuring that individuals with pre-existing conditions have access to coverage that meets their health care needs.
Since its implementation in 2014, the ACA risk adjustment program has largely worked as intended by transferring funds from issuers with lower average actuarial risk enrollees to those with higher average actuarial risk enrollees.1 However, there are disagreements as to how it could be improved: such as whether and how best to pursue potential changes to the methodology; the appropriateness of the magnitude of the transfers; and other issues. Consequently, America’s Health Insurance Plans (AHIP) engaged Wakely to interview actuarial and operational staff of selected member plans regarding their thoughts about how ACA risk adjustment is currently working and what changes would improve the program. While there was not consensus on all issues, most members interviewed agreed that: 1) the program was working well (in that it transfers funds from issuers with lower than average risk enrollees to issuers with higher than average risk enrollees); 2) changes in RA methodology over time have improved the program; and 3) some aspects of the RA program could still be improved, including changes to promote operational efficiency, greater transparency, earlier access to interim data, and targeted policy changes This paper will provide a brief summary of RA, the methodology used for collecting information on member opinions on RA, key findings and observations, and recommendations derived from the interviews.