Payers and researchers warn CMS proposal could cut funds for insurers enrolling high-risk consumers
Proposed changes to a CMS program that transfers funds to insurers that attract high-risk consumers, intended to boost plan enrollment by lowering certain premiums, could have the opposite effect and should be scrapped, say researchers from the Brookings Institution and University of Southern California argue in a new analysis.
The CMS Risk Adjustment Program established under the Affordable Care Act transfers funds from insurers whose plans attract healthier enrollees to insurers whose plans cover higher-risk populations in individual markets and from small groups, both in and out of fellowships.
The program was created to reduce incentives for insurers to avoid enrolling consumers likely to file more costly claims.
Billions of dollars in payments have been transferred between insurers each year under the program since benefit year 2014, according to a CMS technical article published in October. In 2020 alone, $11.17 billion, or 7.5% of premiums, was transferred between risk pools.
There’s a big chunk of money at stake for health insurers, and many have weighed in on CMS’s proposal to change risk score calculations, although opinions are divided. Some have urged the Biden administration to give them more time to consider the ramifications of the changes and how it might affect enrollment and plan pricing.
CMS is now proposing to recalculate the parameters of the program’s risk scoring methodology, including the addition of a two-step weighted approach, beginning with the 2023 benefit year. The goal is to improve accuracy of the model in predicting risk across sub-populations, with the broader goal of further reducing premiums on the cheapest plans favored by those least at risk.
Lower premiums, in turn, should encourage more consumers to buy the plans and more insurers to issue them, according to the rule proposed by CMS. The agency said it found healthier enrollees were underestimated in current models, and the new methodology intends to correct that.
“We believe that by addressing the understatement of costs associated with low-risk enrollees…we could further encourage the retention and supply of plans that enroll a higher proportion of this subpopulation of We believe that issuers offering these types of plans are at a greater risk of exiting the market if the transfers calculated under the state payment transfer formula under-compensate the true plan liabilities of the less-to-pay enrollees. risk”, CMS written in the proposed rule.
The agency said it received feedback from stakeholders suggesting that underreporting low-risk enrollees could discourage healthy consumers from enrolling in some plans. The result could undermine the development of a thriving and stable market and competition based on quality rather than risk selection, CMS said.
But the agency noted that other stakeholders questioned whether model changes should actually focus on improving prediction for low-risk enrollees when the risk-adjustment program aims to reduce incentives. for issuers to avoid listing higher risk individuals.
CMS invited comments on whether the two-step procedure should be introduced on its own or in conjunction with other changes to the model, whether it should not be implemented at all, or whether the agency should seek to improve the prediction of the current model for low-risk enrollees.
The USC-Brookings researchers urge CMS to abandon the two-step approach. According to the paper.
This would drive enrollees to leaner plans, increase premiums on plans favored by those at higher risk and therefore needing stronger coverage, and potentially reduce competition, the researchers say.
Premiums for plans with features like larger provider networks and more lenient usage controls would likely increase for consumers who stay on them, according to the document. Additionally, increasing the incentive for insurers to attract low-risk enrollees could cause plans to drop features valued by high-risk consumers.
The USC-Brookings report also cast doubt on whether the proposed model changes would lead to a substantial increase in insurance enrollment. Cutting premiums on leaner plans could simply attract an influx of high-risk enrollees leaving more robust plans, according to the newspaper.
To improve market outcomes, CMS should instead try to tip the scales toward plans that appeal to high-risk individuals, the researchers said. The agency’s current methodology most likely undercompensates, rather than overcompensates, for differences in claims risk between plans, they said.
“We therefore conclude that CMS should abandon its two-step proposal. While changes to the risk adjustment are warranted, they should be aimed at increasing, not reducing, payments to insurers with high-risk enrollees,” indicates the document.
In comments posted on the CMS’s proposed rule, leading health insurer Anthem recommended that the agency conduct further analysis of the impact of recalibrating its risk adjustment model to ensure that the changes would not have no negative impact on issuers’ ability to offer products at competitive prices when enrolling a disproportionate share of high-cost individuals enrolling.
“Anthem would not support any model changes that would improve risk predictions for certain subpopulations, but at the expense of the RA program’s ability to mitigate adverse selection for high-cost enrollees,” the insurer wrote.
Payer lobby America’s Health Insurance Plans filed a comment advising CMS to continue the process of seeking stakeholder feedback for future changes to the risk adjustment program, saying issuers have had a limited time to analyze the current proposal and provide comments. The proposed rule was posted to the Federal Register on Jan. 5 and comments were expected last week.
Issuers have differing views on proposed changes to the risk adjustment model, AHIP said.
Meanwhile, the powerful hospital group American Hospital Association said it supports the continued refinement of risk adjustment models to increase their overall predictive validity. Risk adjustment continues to be important for market strength and stability, the AHA said.