HIX enrollment closed, risk assignment challenges start

Reimbursement
By Healthcare Finance Staff | April 18, 2014 | 10:51 AM

The Obama administration is boasting that 8 million Americans, including a good number of young people, have enrolled in public exchange plans. The big question now is how will new members fit into the risk adjustment puzzle?

Aside from collecting premiums -- it's still not known how many of the new enrollees have paid for the first month -- many exchange insurers are now trying to learn as much as they can about new enrollees to start assigning them risk scores.

What is known is that in the 36 states with federally-managed exchanges, 28 percent of new plan buyers are between 18 and 34 years old -- a bit less perhaps than what some may have hoped for, but probably enough to avert a premium "death spiral." 

That proportion of young enrollees in federal exchange states jives with the youth turnout in the nation's largest state exchange, Covered California. Of the 1.3 million Californians who bought subsidized private plans through Covered California, 29 percent are ages 18 to 34.

Aside from collecting premiums -- it's still not known how many of the new enrollees have paid for the first month -- many exchange insurers are now trying to learn as much as they can about new enrollees to start assigning them risk scores.

The Affordable Care Act's risk corridors, reinsurance and risk adjustment programs will help with much of the transition to a newly regulated market, and, through the permanent risk adjustment program especially, help avert any problems with plans taking on disproportionate shares of higher cost members.
 
The risk adjustment program is not perfect, though, and there are a few unintended consequences that may plague exchange markets early on, as Milliman actuaries Jason Siegel and Jason Petroske argued in a report earlier this year.
 
Not only is the proportion of young enrollees important across the 8 million-strong risk pool, but an even mix among plans will be a key factor in how fair the market is for insurers.
 
As Siegel and Petroske found, demographics and hierarchical condition categories "may skew the results" of profitability in exchange plans -- and to a "surprising" degree. With the factor of age, under the first year of the adjustment program, males 20 to 34 would have pre-tax profits (based on a 3 percent assumed margin) that are actually losses of about negative 3 percent, Siegel and Petroske found. By their estimates, male members are not profitable until age 45, generating between 2.5 percent and 7 percent in margins as they approach 65.
 
That's one reason why accurately capturing any health risks that young enrollees may have is important now, argued Kate Jordan, an engagement manager at Civis Analytics, a one-year-old startup founded by statisticians and technologists who worked on the Obama campaigns.
 
The risk adjustment program "only works for an insurer if you have your risk coded," she said.
 
"In some ways, the worst case scenario for an insurer is to have a bunch of new risky people but not know those people are at risk because they haven't gone to the doctor yet and haven't submitted any claims," said Jordan, a former associate of management consulting firm, McKinsey.
 
In that case, the new members might look like they are low risk, especially if they are young, but then are actually high risk, leaving insurers taking a "double hit" through the risk adjustments, Jordan said.
Topic:
Reimbursement