As the Affordable Care Act continues to disrupt the health insurance industry, health plans must broaden their definition of risk as they calculate rates and attempt to better understand their members' needs.
Beginning in 2014, per ACA requirements, risk transfer payment programs for individuals and small groups were implemented in each state. "These programs shift premiums from health plans with a healthier member population, compared to the statewide average, to health plans whose population has a higher than average risk profile," said Dan Rachfalski, vice president of actuarial at Independence Blue Cross in Philadelphia.
In light of this, it's important for health plans to provide more targeted health management programs, such as one-on-one case management and disease management to help members stay well, Rachfalski said.
Broadening the definition of risk means including all members in the individual and small group markets within a state, regardless of which health plan insures them. Health plans must consider this as they calculate rates, said Rachfalski.
According to Dave Axene, a fellow of the Society of Actuaries, health insurance risk adjustment now relies more on maintaining a broader risk pool (i.e., essentially age only) and the spreading of risk across the risk pool.
"Another key change is that health plans need to build the systems and operational infrastructure required to collect, compile, and transmit claims information for the risk transfer payment programs," Rachfalski noted.
Underwriting concerns
In the wake of the continually-delayed employer mandate, health plans are concerned about the stability of the risk pool. "So far most of the action has been in individual exchanges, so the larger group issue isn't as significant yet," Axene said.
"The delays have resulted in an extension of uncertainty in the marketplace. Some employers have decided to stop covering dependents in anticipation of ACA on the larger group market. This has impacted health plans to some extent on coordination of benefits."
Rachfalski says that both the individual and employer mandates are critical in ensuring a robust and effective insurance marketplace under the ACA. "Everyone has to be in this to make it work," he said. "The insurance market reforms and mandates are meant to work together." In states that have tried to put in place insurance market reforms without requiring everyone to be covered, for example, premiums have skyrocketed and coverage became unaffordable.
Looking ahead
As a result of the ACA, healthcare will have a significantly different landscape with new insurers, new customers, and new rules.
"Insurers will increasingly be pushed to differentiate themselves, which is why Aetna is focused on innovative solutions that fundamentally change the way that we approach healthcare," said Cynthia B. Michener, an Aetna spokesperson. "Aetna pays hospitals and doctors for quality, not quantity of services provided."
The new ACA requirements are encouraging more customer employer groups to explore alternative options to fully insure group health coverage, such as self-funding, defined contribution strategies, private exchanges and directing employees to public exchanges. "We expect to see more employer groups explore these alternatives in the future," IBC's Rachfalski said.
On the individual level, medical information no longer impacts rates. "If you want to play in the market, you have to accept all comers," Axene said.
While it's more difficult to define the group side, Axene suspects that more information will be developed to identify and focus on attracting "better risks" outside of the traditional underwriting effort, such as creative sales and marketing approaches. "It will become more sophisticated and perhaps less obvious to the customer," he concluded.