Strategic Insights has written often about the looming erosion of Obamacare plan participation due to numerous factors. One of the biggest was that the Department of Health and Human Services (HHS) and Centers for Medicare and Medicaid Services (CMS) funded the important transitional risk corridor premium stabilization program at roughly 13 cents on the dollar for the 2014 payment year. This caused the exit of numerous non-profit co-ops created by the Affordable Care Act (ACA) as well as smaller plans that lost tens of millions in anticipated reimbursement. It also undermined confidence in the system, leading to the significant retrenchment or exit of some larger plans, including United, Humana, Aetna, and many regional Blue Cross and Blue Shield plans.
But with massive lawsuits looming over the risk-corridor short-funding, the Department of Justice (DOJ) is now looking for ways to pay a portion of the massive amount due plans. For 2014, insurers submitted $2.87 billion in risk corridor claims, but a total of just $362 million was contributed. Thus payments in 2015 for 2014 were 12.6 percent of claims.
The other two programs meant to help stabilize the system have fared better. Reinsurance of high-cost claims (also a temporary 3-year program like risk corridors) was funded at 100 percent in 2014 ($7.9 billion). In 2015, while about the same amount was paid out ($7.8 billion), the program was funded at about 55 percent.
The permanent risk adjustment program is a zero-sum game, redistributing money between plans. It sends money to plans with higher risk individuals and pulls it from those with healthier populations. In both 2014 and 2015, about 10 percent of monies were redistributed in the individual market and 6 percent in the small group one. These are reasonable thresholds that seem to be tied largely to differences in risk scores. However, smaller plans were hammered by the redistribution in each year, in part due to lack of robust medical claims submission capabilities and the fact that prescription drugs are currently not counted in the model (prescription drug claims come in faster and much cleaner to submit to regulatory authorities for risk scoring purposes). Imagine a small plan receiving a bill for tens of millions of dollars for a 2014 risk adjustment transfer and also being told that their risk corridor payments were being short-funded by the same tens of millions? No wonder so many non-profit co-ops and for-profit small plans went belly-up in Obamacare. In response to the concerns, CMS will refine the risk adjustment program: in 2017, the model will begin to account for partial year enrollees and in 2018 prescription drug utilization will be included.
In the case of risk corridors, The Washington Post reports that the DOJ may help HHS and CMS go around Congress and fund a portion of the 2014 obligations from a federal Treasury litigation settlement fund. The rationale: loss in court is likely as the payments are an obligation and must be paid. 2015 payments will also be announced imminently. In a deeply political move, Congress earlier barred the payment of risk corridor payments from general funds. For 2014, 175 insurers are owed money.
The payout from the Treasury settlement fund is not certain yet because a new controversy in Obamacare (imagine!) is now brewing. The General Accountability Office (GAO) has issued an opinion (although it has now enforcement authority) that CMS violated the law by distributing too much reinsurance money because it was obligated to deposit a certain portion of collections from plans in the Treasury.
In the end, the risk corridor settlement payments would be fair and equitable. Insurers who took the chance to hop into the untested Exchanges relied on the fact that the three programs would help them navigate the rough waters in the early years. But the fact remains that this may be too little too late. As noted, two of the programs go away next year and the damage was already done for many insurers. In addition, as we noted in past blogs, there are numerous other flaws that must be addressed to ensure the success of the Affordable Care Act.