To create a competitve, viable health insurance market governed by the Patient Protection and Affordable Care Act (PPACA), regulators must make sure rates are high enough to protect against losses as well as low enough to avoid excessive burdens on consumers.
Adrian Clark and James O'Connor, analysts at Milliman Inc., give that assessment in an analysis of PPACA health plan risk mitigation programs released by the Society of Actuaries (SOA), Schaumburg, Ill.
The SOA commissioned Milliman to look at three major programs that are supposed to help health plans guard against the risk that sicker patients will overwhelm some plans once PPACA consumer rules take effect in 2014.
If PPACA takes effect on schedule and works as drafters it expect, the law will require plans to sell coverage on a guaranteed-issue basis, forbid plans from considering most health status indicators when setting rates, and limit the difference between what plans can charge the oldest insureds and the youngest insureds.
PPACA drafters tried to minimize the likelihood that shifts in risks related to those changes would hurt health plans by creating three risk mitigation programs:
A permanent risk adjustment program that would shift funds from plans with healthier enrollees to plans with less healthy enrollees.
A temporary reinsurance program for plans that enroll individuals with high claims costs.
A 3-year risk corridor program that would help plans with mispriced premiums.
Clark and OConnor used a Milliman PPACA model to analyze how the risk mitigation programs might behave in 6 different scenarios.
"Risk mitigation programs appear to reduce financial risks to health plans," the actuaries write. "At the same time, overly restrictive premium rate limitations can lead to high federal risk corridor payments."
If plans do not charge premiums that are high enough to meet claims and expenses, "federal payments under the risk corridor programs will be high to compensate partially for the inadequate premiums," the actuaries say.
"The impact of inadequate rates on a health plan’s financial viability should also be considered. This result stresses the need for the rate review process to not only guard against unduly high premiums, but also to ensure that premiums are not set too low. This is especially important in 2017 and beyond, after the expiration of the risk corridor program."
Plans in states with fewer coverage rules today might need bigger increases than plans in other states, the actuaries say.