On October 1, 2015, the Centers for Medicare and Medicaid Services announced the total of collections and payouts under the risk corridor premium stabilization program for 2014. CMS announced that insurers have submitted $2.87 billion in risk corridor claims for 2014. Insurers only owe, however, $362 million in risk corridor contributions. Thus payments in 2015 for 2014 will be paid out at 12.6 percent of claims, assuming full collections of contributions owed
The Affordable Care Act established three premium stabilization programs: the permanent risk adjustment program, which collects funds from insurers in the individual and small group markets that have enrolled lower-risk enrollees and transfers the funds to insurers that have enrolled higher risk enrollees; the three-year reinsurance program, which collects contributions from all insured and self-insured health plans in individual and group markets and pays out those funds to reinsure high-cost claims in the individual market; and the three-year risk corridor program.
The risk corridor program applies only to insurers that offer qualified health plans (QHPs), that is, plans certified through the exchange. It was intended to reduce the risk that insurers faced in setting their premiums in this new and unfamiliar market. It compares each insurer's "allowable costs"—claims plus other allowable costs—with the insurer's "target amount"—its premiums minus administrative expenses, including profit. If an insurer's target amount exceeds its allowable costs by more than a certain percentage, it pays into the program. If an insurer's allowable costs exceed its target amount by more than a certain percentage, the insurer can collect from the program.
In late June, 2015, CMS announced the results of the 2014 reinsurance and risk adjustment programs. CMS received fewer claims than anticipated under the reinsurance program and thus was able to pay out 100 percent of eligible claims rather than 80 percent, as initially projected. This amounted to $7.9 billion according to today's statement. CMS will also transfer $4.6 billion under the risk adjustment program for 2014.
CMS was supposed to release the results of the risk corridor program on August 14. There were problems, however, with the risk corridor data reported by insurers, requiring CMS to delay releasing the results until the data was validated. On October 1, those results finally became available.
As noted above, CMS announced that insurers have submitted $2.87 billion in risk corridor claims for 2014. Insurers only owe, however, $362 million in risk corridor contributions. The imbalance between contributions and claims may be due to some extent to CMS's attempt to use the risk corridor program to assist insurers affected by the administration's transitional plan program. The transitional program has allowed enrollees to remain in plans that do not comply with the 2014 market reforms until 2017.
It is generally believed that healthier enrollees have remained in noncompliant coverage under the transition plan program, and that this has disadvantaged insurers offering ACA-compliant plans. The administration modified the parameters of the risk corridor program for 2014 to attempt to help insurers affected by this factor. This has increased the amount owed to insurers Given the extent of the imbalance between collections and payments, however, full payment of claims would probably not have occurred in 2014 in any event.
Although the ACA is not entirely clear whether the risk corridor program was intended to be wholly self financing, CMS has taken the position that it will be, at least for 2014. Under the 2015 "Cromnibus" budget bill, Congress specified that payments out to insurers under the program during 2015 could not exceed collections. Thus, as already mentioned, payments in 2015 for 2014 will be paid out at 12.6 percent of claims, assuming full collections of contributions owed. Collections will begin in November and payments in December of 2015.
Amounts claimed for 2014 that exceed $362 million will be paid from 2015 collections in 2016 if possible. Shortfalls for 2015 will in turn be covered from 2016 collections in 2017. If the three-year program ends up in the red in 2017, CMS states that it will "work with Congress" to secure funding, if possible.
The risk corridor program is intended to assist insurers whose claims significantly exceed their expectations, and thus their premium collections. State insurance departments have allowed insurers to take their anticipated risk corridor collections into account when evaluating the financial stability of those insurers. Some of these insurers may face financial difficulties given the small payout of risk corridor funds that will be available at this time. CMS pledges itself to work with state insurance departments in these situations. It must be remembered, however, that reinsurance payments to insurers exceeded expectations and that even at full payment, the risk corridor program would be by far the smallest of the premium stabilization programs.
In Other News
CMS also released on October 1 the latest version of its "Federally Facilitated Marketplace and Federally Facilitated Small Business Health Options Program Enrollment Manual." This is, I believe, the first comprehensive update of this manual since 2013. Topics covered include enrollment in the individual market, SHOP enrollment, direct enrollment (through insurers), special enrollment periods, premiums, terminations, retroactive coverage, reinstatements, and enrollment reconciliation.
The manual is lengthy and comprehensive. For the most part, however, it simply assembles at one place existing guidance on these topics rather than providing new information. I will attempt to offer further analysis of the manual as time permits.
from Health Affairs Blog http://ift.tt/1VtdiyN
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