Small Plans Float Idea To Shrink Risk Adjustment Transfers After CMS Meeting

April 06, 2016

A push by small plans to get state insurance commissioners on board with an idea to shrink the size of participating payers' risk adjustment transfers went “exceptionally well” this week, Sean Mullin, a senior director at Leavitt Partners, told Inside Health Policy on Tuesday (April 5).

Mullin, who works with the CHOICES -- Consumers for Health Options, Insurance Coverage in Exchanges in States -- coalition of small insurers, presented a draft white paper on the proposal to the National Association of Insurance Commissioners with New Mexico Health Connections co-op CEO Martin Hickey. It quickly moved to a more formal consideration process, Mullin said, and will be taken up by the NAIC's actuarial group next week.

He listed Alabama, Connecticut, Tennessee, Mississippi, Maryland and New Mexico among the states most likely to take up the idea first this year, with others to follow if the plan works well.

“CMS would continue to operate the Risk Adjustment Model and Transfer Formula as is, but after the transfer payments are calculated, state regulators would reduce all transfer amounts by a fixed percentage, e.g., 50%,” the white paper said. “This solution would reduce all payments and receivables proportionately, thereby moderating the variability in payments and easing the overall financial strain on a state’s insurance market. Given that each state’s market dynamic is different, regulators would apply a fixed percentage reduction that works with their state market.”

States could also set a “minimum member threshold” for their local health plans and conduct more research into how a change in payments would affect a plan’s net revenue, according to the white paper.

Mullin noted that the memo, which has not been publicly released, is still a draft but may well be finalized after a conference call with stakeholders on Wednesday. IHP obtained a copy of the draft on Monday.

CMS indicated at an industry-wide meeting on proposed changes to the risk adjustment program last week that post-transfer tweaks might be allowed, more leeway than states have heard on a similar idea to cap RA transfers at 2 percent. That's encouraging to commissioners who feel they've lost the battle against CMS on ways to help plans in their states, Mullin said.

Those who drafted the reduction proposal believe they've stumbled upon something that will not make CMS change their formula, and so strikes a balance between state regulatory authority and federal oversight over the ACA's risk mitigation programs.

Mullin believes the magnitude of the RA program is too great, particularly for this early in the ACA's market evolution. The flawed RA system affects insurers no matter their size, he said, but it scares the smaller players because growth may mean bringing in healthy members who would cause the plan to pay in for RA. That might make the difference between business and bankruptcy for a new or small insurer who has less money to fall back on.

In practice, Mullin isn't sure how the reduction would get underway -- Would CMS have to approve it? Would it require legislative action or a simple decree from the regulator? -- but noted that stakeholders are looking at a two-month window of opportunity before final 2015 RA figures are made public. Some plans want the change made even sooner, before premium rates are filed next month.

The tweak would last until insurance companies feel the risk-adjusted market is mature and stable enough to return to full transfer amounts, Mullin mused. He speculates that time may not come until 2021 at the earliest, since CMS won't use real data on the ACA population for its risk adjustment formula until 2019.

"Every single one would love to be able to take on this issue," Mullin said of state regulators. "We want this to work for everybody." -- Rachel S. Karas (rkaras@iwpnews.com)