Actuaries, regulators and others have started to wrestle with a complicated packet of draft regulations that could affect how health insurers cope with the effects of the Patient Protection and Affordable Care Act (PPACA) on health claims costs.
The Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health and Human Services, developed the draft regulations, "Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014" (CMS-9964-P), in an effort to apply PPACA risk-adjustment provisions.
PPACA is supposed to stop health insurers from using most personal health information other than age when selling and pricing coverage starting in 2014. The law also is on track to create new subsidies and programs that are supposed to help uninsured people get coverage. The law already has banned lifetime benefits limits and is in the process of phasing in annual benefits limits.
PPACA is supposed to create three new programs -- a 3-year, temporary reinsurance program; a 3-year, temporary risk corridor program; and a permanent Risk Adjustment Program -- to help protect insurers against the possibility that the sickest consumers could end up flooding into certain plans and capsizing those plans.
The reinsurance and risk corridor programs would provide cash for plans that have already lost money on high-cost enrollees. The adjustment program would use modern statistical forecasting techniques to provide extra cash for plans with high-risk enrollees while the plans are covering the high-risk enrollees.
Mark Danburg-Wyld, a fellow in the Society of Actuaries and a member of the American Academy of Actuaries, wrote to CMS to say he thinks the designers of temporary reinsurance program have taken the wrong approach.
The program deductible is low and the coinsurance rate is high, Danburg-Wyld said.
The designers seem to be assuming that the biggest threat to health insurers will be catastrophic claims, Danburg-Wyld said.
"My expectation is that the risk associated with newly insured members is not for catastrophic claims, but rather for exceptionally high utilization due to pent up demand," Danburg-Wyld said.
The big threat will come from an increase in claims in the $500 to $2,000 range, from essentially healthy people who get extra testing the first time they get an insurer-paid office visit, Danburg-Wyld said.
"The currently uninsured who are likely to reach the proposed $60,000 attachment point are also likely to have already sought coverage through one of the high risk pools already in place," Danburg-Wyld said.
Because of that pent-up demand risk, the best reinsurance approach might cover half of the costs of individual members up to $5,000, Danburg-Wyld said.
"Such an approach would give each carrier a share of the reinsurance pool more equivalent to that carrier's share of the national individual market," Danburg-Wyld said. "I believe this approach would provide carriers with a stronger incentive to participate in the individual market, would do more to alleviate concerns about the impact of pent up demand among the currently uninsured, and would be more effective in stabilizing rates in the individual market during the transition period."
Margaret Murray of the Association for Community Affiliated Plans, a group of plans that already serve Medicaid enrollees and other low-income enrollees, suggested that HHS officials should follow newly insured enrollees carefully at first, to look for ways to improve risk-adjustment mechanisms for those enrollees, and especially for high-risk and low-income enrollees.
HHS should "examine the longer-term need to adjust payment methods for differences in socio-economic circumstances that increase needs for health care and care management," Murray said.
HHS also should consider asking Congress to make the reinsurance and risk corridor programs last longer if that seems to be necessary, Murray said.
One challenge is that performing the kind of sophisticated patient analysis needed to use the permanent risk adjustment program might be difficult if a newly insured patient has complicated health problems and no medical records, Murray said.
Lou Savage, the Oregon insurance commissioner, urged CMS to make risk management program parameters flexible, and to think about whether payment mechanisms are fair and adequate.
HHS has proposed at having the national reinsurance fund charge a flat amount of $5.25 per enrollee per month. If that formula sticks, residents in some states could end up subsidizing enrollees in other states, Savage said.
Oregon believes that the flat reinsurance fee would be too low to fund the promised reinsurance program payments, Savage added.