Results were released by CMS for the 3rd year 2016, of the reinsurance & risk adjustment programs on June 30th, 2017. This is 2 of the (ACA) Affordable Cares Act’s “Three R’s” (premium, stabilization programs). The “third R” (2016 results) which is from the (risk corridor program) is to be announced, most likely later in the year.
ACA’s (Three R) Programs which were modeled after Part D of Medicare only they are more controversial and weaker than the Part D counterparts.
ACA’s Three R programs had been modeled from comparable premium stabilization programs which have been operating almost a decade for the Medicare Part D prescription drug plans. A risk adjustment program is part of the Part D program that adjusts insurance premiums prospectively as opposed to insurer income retrospectively. A much more generous reinsurance program the what the ACA program has and it’s permanent as opposed to being temporary. Then a permanent “risk corridor program” which is also generous in comparison to the ACA program. The part D premium stabilization programs factor has been very important in maintain popularity and bipartisan support for Medicare Part D. It initially attracted insurers to the prescriptions drug program helping to stabilize premiums and keep the premium increases low since 2006 when the program was launched.
The premium stabilization programs for ACA have been much more controversial than Medicare Part D programs. The risk corridor program, which was criticized to be an insurer bail-out; was undermined by appropriations riders that was enacted by Congress. This limited program payout amounts that were collected from insurers. This caused the Dept. of Health and Human Services to only pay out 12.6% of amounts that were owed to insurers in 2014 due to this constraint all while unable to make payments for the 2015 since it set off 2015 collection against the 2014 obligations. This has contributed to insolvency of many insurers resulting in a number of lawsuits within the Federal Court of Claims. Insurers are trying to collect their full amount claimed due under the statute.
25 billion dollars was to be collected under the reinsurance program over its 3-year life and then pay out $5 billion of this amount to the Treasury to reimburse funds spent for the Early Retiree Reinsurance program from 2010-2013. The Obama administration took a position saying this reimbursement for the Treasury was to only be paid after all reinsurance obligation had first been met. Nothing was in 2015 was paid to the Treasury and in 2016 it was less than one half billion dollars. ACA critics condemned this position introducing legislation in 2016 forcing HHS to make the repayment. Not bowing to this pressure; the Trump administration s is paying the full $4 billion due to the insurers under this program for 2016.
CMS has made numerous changes in the risk adjustment methodology in 2017 causing it to come under some criticism for the formula used. Changes including better accounting for drug cost increases and preventive services that will be factored in. Even greater changes will be incorporated for 2018 that can include partial year enrollees and prescription drug use adjustments. Then for very high costs cases setting up separate risk adjustment pools.
The importance of Reinsurance and its Widespread Recognition
The fact is the reinsurance program; despite criticism, has made a considerable contribution in constraining the marketplace premiums. Net claim costs were reduced during 2014 with the reinsurance program which was estimated at 10–14%; then 6-11% for 2015 and during 2016 it was 4-6%. The reinsurance program end after 2016 is a major driver of the increases in premiums for 2017 and 2018. As congress recognizes this; the consensus is the need for further reinsurance funding. Reinsurance funds for the individual market are included in the Houses American Health Care Act, and the Senate’s Better Care Reconciliation Act, as well as the health reform legislation introduced by the Democrats.