Toying With Obamacare

Risk adjustment

Risk adjustment is a program created to help stabilize the health insurance market. It pools the risk of insuring people. The program encourages insurers to participate in the insurance marketplaces created by the Affordable Care Act (ACA).

♦ The expectation being that by sharing risk insurance premiums could be better stabilized, particularly during the initial years of the ACA.

The Affordable Care Act requires insures to accept everyone, even very sick people. In exchange for accepting people with pre-existing conditions insurers were promised risk protection. The risk adjustment program is a way to protect insurers from large losses should they cover too many expensive customers.

♦ Insurers may still try to attract healthier people by making their products unattractive to people with expensive health conditions. One way they do this is by adjusting the benefits to not cover expensive medications or with higher deductibles and lower premiums to attract healthier individuals.

Insurance companies that are fortunate to enroll more healthy people could potentially see very good profits. The risk adjustment program requires these profitable insurers to pay into the fund. The not so fortunate insurance companies stand a chance of receiving money from the fund.

The money in the fund does not come from the government. The money is contributed by health insurance companies. Centers for Medicare and Medicaid Services (CMS) oversees the fund. The government does the calculating, banking and distribution of the funds.

♦ The fund is currently around $10.4 billion dollars. Money that is supposed to be distributed this fall.

The Republican-led Congress failed to repeal and replace Obamacare, last year. The administration is now left with destabilizing the marketplace.

• Suspension of risk adjustment payments is just another attempt to undermine rather than fix.

CMS announced on a Saturday that these payments would be stopped. The timing was very suspect. This was just after many insurance companies submitted their rate increases for 2019 plan year. Rates that most analysis said were surprisingly low.

♦ CMS’s announcement drew swift complaints from the health insurance industry. The timing could not have been worse with many insurance companies saying they would now be under pressure to raise their earlier rate requests.

This comes just days after the administration announced deep cuts to funding for Marketplace navigators.  An action that will make Obamacare enrollment more challenging.

Last year was a busy year with the administration attempting to discourage enrollment by cutting the open enrollment period in half. And by stopping of cost-sharing reduction payments to insurers, putting pressure on them to raise premiums.

♦ Democrats and some Republicans up for re-election quickly jumped in to point out this action by CMS was going to destabilize the health insurance markets and would surely drive up premium prices.

The official line

The administration said they had no choice but to stop the payments. It was a weak excuse framed around a court ruling.

In February, a complaint was filed by a small Consumer Oriented and Operated Plan (Co-op). It had to do with the way the risk adjustment funds were being calculated and “unfairly” distributed.

The Co-op argued the formula used by CMS was tilted in favor of bigger national insurance carriers. A federal judge in New Mexico agreed with them.

A federal district judge in Massachusetts found the other way. The Massachusetts judge said the formula for calculating was fair.

♦ In June, the administration asked the New Mexico judge to reconsider.

Arguing in court is not about the legality of the program.  It is about the calculation favoring one group of insurers over another.

The money won't be distributed until sometime in October.  So why make an announcement now to stop payments?