The many moving parts in the government's ACA plan transition policies are creating a range of new complexities for premium pricing, member pools and the new risk-sharing programs.
Between the extension of individual and group health plans not compliant with the Affordable Care Act, the flexibility granted to state regulators and the complexity of the risk adjustment and reinsurance programs, insurers will be facing a lot of "known unknowns" over the next few years.
"The one certainty at this point is that further changes are likely," wrote Milliman actuary Hans Leida in a new analysis.
The original one-year extension of non-compliant plans being extended further, through October 2016, could send ripple effects throughout insurance markets. But some recent federal tweaking may help, Leida argues.
While it's not clear how many states are going to take up the extension offer, 28 are extending pre-ACA plans for at least one year, and the impacts from those could be felt both in public exchanges and in the group market.
Depending on how many states extend the plans through 2016, and how many decide to extend both individual and small group plans, some states may "effectively delay the expansion of the small group market to 51 to 100 employee groups until 2017," writes Leida, while some, particularly young, consumers may not find their way to exchange plans for a few years.
All of which may make it a bit more difficult to set 2015 plan-year premiums, which have to be filed with federal and state regulators this summer, only a few months after many public exchange insurers will have gotten a sense of their new members.
Assessing the impact
The transitional plans -- which could cover anywhere from 500,000 to 1.5 million Americans nationwide -- will not be included in the risk corridor, risk adjustment and reinsurance programs' accounting, as the Centers for Medicare & Medicaid Services explained in a recent policy notice.
But the agency is going to try to account for the effects of the transitional policies.
In states that decide to extend pre-ACA plans, CMS regulators will use an adjustment percentage calculation that will be added to qualified health plans' 3 percent profit floor and 20 percent administrative cap in the risk corridors program.
This adjustment percentage will likely "increase overall risk corridor settlements in transitional states relative to what they would have been without the adjustment percentage," writes Leida. "However, the adjustment percentage will be set to zero when calculating medical loss ratios to avoid generating additional rebates to policyholders."
In recent rule proposals, now out for comment, CMS is offering other tweaks that could offset the market turbulence, as Leida highlights.
The agency is planning to allocate reinsurance contributions to the reinsurance pool and administrative cost pool first, before going to the U.S. Treasury Department, in a departure from previous rules that would have split shortfalls between the Treasury and qualified health plans on a pro-rated basis.
"In other words," Leida writes, "if less money is collected than intended, the U.S. Treasury will be the first to absorb the shortfall, not insurers."
And it's "a significant change," Leida argues, "since under the proposed rule a shortfall of up to $2 billion out of the $12.02 billion total collection for 2014 could occur before the amount allocated to pay reinsurance-eligible claims would be reduced."
Looking to 2015, CMS is proposing to raise the risk corridor formula's administrative cost ceiling to 22 percent and profit floor to 5 percent of after-tax premiums. That would apply to exchange health plans, but would not be included in medical loss ratios.
Two other factors will have "subtle implications," Leida argues: the fact that risk corridors account for the impact of reinsurance and risk adjustment transfers, and that risk corridor settlements are based on actual costs and revenue, while risk adjustments don't account for reinsurance and are based on statistical models of insurers' risk profiles.
"The changes to the reinsurance parameters have the effect of injecting additional money into the individual market, Leida writes. "Unlike risk adjustment, risk corridors can then try to move some of that money to issuers adversely impacted by the transitional policy. Risk adjustment cannot do this as directly, since it does not directly depend on an issuer's actual financial results."