On August 12, 2016, the federal Centers for Medicare and Medicaid Services (CMS) issued both a report delivering a message of optimism regarding the healthcare Marketplaces (or exchanges) and posted a blog written by the exchange CEO in which more regulatory flexibility was promised. All this against the backdrop of continuing, expanding, nationwide litigation over the future of the 3Rs program, controversy over rate filings and insurers deciding whether or not they will offer coverage on the exchanges will make 2017 a critical and interesting year for the ACA.
CMS Marketplace Report
CMS released a report presenting three positive findings regarding the evolution of costs in the Affordable Care Act (ACA) individual market from 2014 to 2015.
- Per-enrollee costs in the ACA individual market were essentially unchanged between 2014 and 2015.
- Available evidence indicates that the slow ACA individual market cost growth resulted at least in part from a broader, healthier risk pool.
- Nearly all states saw continued growth in Marketplace enrollment in 2016, suggesting continued risk pool improvement.
Modifications to Risk Adjustment Program
In a companion post to the CMS blog, Kevin Counihan (CEO of the federal Health Insurance Marketplace) announced future rulemaking to modify the ACA’ s permanent Risk Adjustment program. Mr. Counihan stated that CMS will “propose modifying the risk adjustment program to absorb some of the cost for claims above a certain threshold (e.g., $2 million), funded by a small payment from all issuers.”
The CMS cost findings from 2014 and 2015 appear positive. But, in any case, questions remain as to whether those findings are indicative of trends for 2017 and beyond. As insurers became more familiar with their risk pools, individual premiums increased by (on average) about 5% in 2016. And, with the temporary reinsurance element of the 3Rs program coming to an end in 2017, experts and actuaries expect individual premiums to increase (on average) by about another 10% in 2017. Some insurers are asking for even larger increases pointing to the high cost of covering insureds with expensive to treat conditions. Other factors impacting rates include churn from insureds changing carriers or even dropping coverage after receiving expensive healthcare. Even a relatively small number of individuals with serious health conditions can have a significant impact on an insurer’s cost of coverage.
In response, CMS promises a future modification of the permanent Risk Adjustment element of the 3Rs program “to better adjust for the highest-cost enrollees and their actuarial risk, which would achieve some of the same risk-sharing benefits as the reinsurance program.”
Mr. Counihan also states that CMS is “exploring options” for other rulemaking aspects regarding the Risk Adjustment program, which may be a response to the recent lawsuit filed against CMS by Evergreen Health Cooperative, a Maryland Consumer Operated and Oriented Plan (CO-OP). Risk Adjustment is a redistributive zero-sum game, with the federal government administering payments from plans with lower-cost members to plans with higher-cost members. However, as Evergreen and others have argued, the Risk Adjustment formula favors big, established plans with more claims experience by not accounting for the effects of certain claims data and not including prescription drug data. As a result, CMS may be exploring ways to both stabilize premiums for individuals and level the regulatory playing field for different types of insurers.
Mr. Counihan closes his post by stating that the CMS “door is always open to new ideas that help spread the risk of providing coverage for people with significant health care needs.” Such ideas are certainly needed as nationwide 3Rs litigation continues, premiums increase and insurers reconsider participation on the exchanges.
The CMS report can be found here: https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Final-Risk-Pool-Analysis-8_11_16.pdf.
The companion blog post from Mr. Counihan can be found here: