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Risk-Adjustments Freeze Would Hit Some Insurers Harder Than Others

Analysis  |  By Steven Porter  
   July 10, 2018

Beyond the prospect of creating winners and losers in the industry, the uncertainty could threaten to stymie the push toward value-based care models.

As insurers gauge how the freezing of $10.4 billion in risk-adjustment payments could impact their financial performance, it's clear that their exposure varies significantly across the industry.

The program, which was designed to be a permanent feature of the Affordable Care Act, transfers money from health plans with lower-risk consumers to plans with higher-risk consumers. It does so to back up the ACA's prohibition on picking and choosing consumers based on their individual risk.

Related: Uncertainty Reigns After $10B in ACA Risk Adjustments Frozen

When payments are put on hold, however—as the Centers for Medicare & Medicaid Services announced Saturday would happen for the 2017 benefit year—it creates a list of potential winners and losers. Some companies that had expected hundreds of millions of dollars in risk-adjustment payments fear the funds may fall through, while others that had expected to owe hundreds of millions wonder if they may be off the hook.

This added risk could ultimately dampen the push toward value-based healthcare delivery, says Michael Abrams, MA, co-founder and managing partner of Numerof & Associates.

"No matter how you slice it, injecting more uncertainty into this situation is not good for anyone, regardless of where you stand on value-based models," Abrams tells HealthLeaders Media.

Even if the risk-adjustment payments are merely delayed, not canceled, insurers will likely incur unanticipated expenses related to the delay in cash flow, which could prompt premium hikes, he says.

"Longer-term, I think that the administration's walk-back of risk-adjustment payments penalizes those payers that did, in fact, attempt to enroll participants without bias to health status, and unfortunately it also rewards those payers that for whatever reason decided to play it that much safer and do their best to recruit healthy individuals," Abrams says.

All of this increases the risk payers take by participating in a federally sponsored program, and it makes it more difficult for payers and providers to reach deals with which all parties are comfortable, he adds.

"The reluctance of provider organizations to take on risk has always been I think the principal obstacle here. And the reason that the penetration of value-based programs—even those that have upside-only risk—[has lagged] is that reluctance and the sense that they don't have deep capital reserves, aren't prepared and equipped to handle a significant financial shock like some sort of clawback because they missed their targets," Abrams says.

Insurers: Winners & Losers

In the event that the delay in 2017 risk-adjustments becomes permanent, Kaiser Pemanente stands to gain the most, according to CMS data crunched by Axios' Bob Herman and Harry Stevens. The Oakland, California–based company was expected to owe $928 million for 2017 ACA risk adjustments.

Molina Healthcare came in second, owing $853 million. Centene and Fidelis ranked third, owing $689 million.

On the opposite end of the spectrum, the biggest losers would be Anthem, which expects to receive $522 million; Blue Cross Blue Shield of Florida, which expected to receive $618 million; Health Care Service Corp., which expected to receive $640 million; and Blue Shield of California, which expected a $696 million payout.

Experts seem to agree it's unlikely that CMS will halt the risk-reduction payments altogether, which has critics claiming the Trump administration is simply seeking another means by which to sabotage the law.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

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