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What are MLR’s?

What are MLR’s?

by | Dec 23, 2012

mlr_diagram

What are MLR’s?

So what are are Medical Loss Ratios and why should we care?

Medical Loss Ratio (MLR) – The minimum percentage of premium dollars a commercial insurance company must spend on the reimbursement of certain medical costs. The health reform law requires insurers in the large group market to have an MLR of 85% and insurers in the small group and individual markets to have an MLR of 80% (with some waivers granted to states to reduce the threshold for certain markets).

The MLR calculation is determined on a state-by-state basis by each insurer or  HMO. Rebates are calculated separately for the individual, small group and large  group markets in each state.

The final regulations issued onDecember 2, 2011:
• The rebate distribution processwassimplified to allowmostrebatesto be distributed to group policyholders rather than to each participantin a group plan.
• Employers can distribute rebatesin a variety ofwaysincluding future premiumreductions and benefit enhancementsthatwill allowrebatesto be tax-free to recipients.

This is arguably the most significant change in Health Care Reform. In short, this is a price control on health insurers regulating  profits ceilings.  Unlike many industries, however, insurers must maintain a high minimum in reserves.  After-all if Health Underwriters incorrectly predict  unknown future costs by pricing too low there is no recovery of losses.  Conversely if they priced policies too high they must return premiums to subscribers.  While this is altruistically great, in today’s  Oligopoly Business with an avg of 3-4 insurers in a NYC Metro Area the realities are little motivation to compete.  Furthermore, health insurers in NYS have higher MLR rates and must place rate filings a year in advance.  This complicates the ability of actuarial  to predict future costs thus asking for higher rate increase just in case.  The State then reacts by cutting increase in half which forces more insurers out of State and actually emboldens remaining health insurers to push for more aggressive cuts in benefits, challenging underwriting participation’s and limit an insurers will to go above and beyond minimum essential benefits requirements.

In full disclosure, the Benefit advisor (broker/consultant) commissions have been cut close to 50% as this cuts into insurers profits. See our interview in Crain’s regarding this https://medicalsolutionscorp.com/p/crains-article-on-broker-commissions-cuts. Small Businesses and Sole Prop feel this the most as the resources needed to intelligently shop for benefits, reinsurance,  navigate state/federal laws,  employee annual open enrollments meetings have been defrayed by using a Broker.  In many cases, good Brokers have become the de-facto HR.

The Federal Gov has  already spent $2.2 Billion on State Exchanges. And this figures does not include remaining States as there are only 19 States working on an Exchange for 2014.  The Exchanges will be built up for 2 years and then must be fully independent by 2016.  If 88% of small groups coverage purchased by Brokers acc. to Boston’s Wakely Report in research study- Role of Producers and Other Third Party Assisters in New York’s Individual and SHOP Exchanges the distribution infrastructure is already there.  Access to care is not the difficulty in finding a plan its the very cost of the plan!  Why then does NYS decide to spend on building up new infrastructures? Agents/Brokers can easily outreach and council to uninsured as well.  In fact many small businesses such as construction, consulting services and dining have many uninsured that an Agent/Broker already has a relationship with.

So where is this going?  A weakened health insurer  market place with the new domination of powerful large Medical groups numbering in the thousands + mega Hospital chains dictating rates.  To be sure some the Hospital market is becoming close to an Oligopoly as well see:  http://www.nytimes.com/2012/03/08/health/hospital-groups-will-get-bigger-moodys-report-says.html?_r=0.  Still disagree? Hospital stocks have averaged 20-30%  increases while insurance stocks have remained net net stagnant and down after initial spike.  Ask yourself  why NYS had 10 – 15  private  health insurers 20 years ago while there are no rumors of new insurers or  returning insurers?

If additional changes aren’t made, there could be unintended consequences including less competition, a reduction in consumer choice and higher health insurance costs.  Oh I almost forgot,  most clients especially NY SMB were not entitled to a rebate check with a small minority receiving avg $120.

 

 

What Our Clients Say

What Our Clients Say

by | Aug 17, 2017

Don’t just take our word for it….consider what our clients say about working with Millennium Medical Solutions!   Office Manager 1 review ⭐️⭐️⭐️⭐️⭐️ 2 weeks ago- I have been working with Alex and Jonathan from Millennium Medical Solutions for ten plus years....
Health Insurance Glossary

Health Insurance Glossary

by | Aug 16, 2017

Health Insurance TerminologyHealth Insurance Glossary

On occasion, there are questions about what a specific word or term means in the context of health
insurance. This glossary is intended to serve as a tool to assist you in understanding some of the
most common terms.
A
Affordable Care Act (ACA): The comprehensive health care reform law enacted in March 2010.
Affordable Coverage: An employer-sponsored health plan covering only the employee, the cost of which
does not exceed a set annual percentage of the employee’s household income. Click here for more
information.
Allowed Amount: The maximum amount a plan will pay for a covered health care service. If a provider
charges more than the plan’s allowed amount, the plan participant may have to pay the difference through
a process called balance billing.
Annual Limit: A cap on the benefits an insurance company will pay in a year while a plan participant is
enrolled in a particular health insurance plan. Annual limits are sometimes placed on particular services such
as prescriptions or hospitalizations, on the dollar amount of covered services, or on the number of visits that
will be covered for a particular service. After an annual limit is reached, the plan participant must pay all
associated health care costs for the rest of the year.
B
Balance Billing: When a provider bills a patient for the difference between the provider’s charge and the
patient’s insurance plan’s allowed amount. For example, if the provider’s charge is $100 and the patient’s
insurance plan’s allowed amount is $70, the provider might bill the patient for the remaining $30.
Brand-Name Drug: A drug sold by a drug company under a specific name or trademark and that is
protected by a patent. Brand-name drugs may be available by prescription or over the counter.
C
CHIP (Children’s Health Insurance Program): Insurance program that provides low-cost health coverage to
children in families that earn too much money to qualify for Medicaid, but not enough money to buy private
insurance.
Claim: A request for payment of a benefit by a plan participant or his or her health care provider to the
insurer for items or services the participant believes are covered by the plan.
COBRA (Consolidated Omnibus Budget Reconciliation Act): A federal law that may allow a plan participant
or his or her dependents to temporarily keep their existing health coverage after certain qualifying events
(such as the participant’s employment ending or losing coverage as a dependent of a covered
employee). Click here for more information.
Coinsurance: The percentage of costs of a covered health care service the participant pays after having
paid his or her deductible.
Co-op Plan: A health plan offered by a non-profit organization in which the same people who own the
company are insured by the company.
Copay (also known as copayment): A fixed amount the participant pays for a covered health care service
after having paid his or her deductible.
Coverage:See Health Insurance
Cost Sharing: The share of costs covered by insurance that a plan participant pays out of his or her own
pocket. Cost sharing generally includes deductibles, coinsurance, and copays, but does not include
premiums.
D
Deductible: The amount a plan participant pays for covered health care services before his or her insurance
plan starts to pay.
Dental Coverage: Benefits that help pay for the cost of visits to a dentist.
Dependent: A child or other individual for whom a parent, relative, or other person may claim a personal
exemption that reduces their tax obligation.
Diagnostic Test: Test to figure out what the plan participant’s health problem is. For example, an x-ray can be
a diagnostic test to diagnose a broken bone.
Disability: A limit in a range of major life activities. This includes activities like seeing, hearing, and walking, and
tasks such as thinking and working.
Drug List: See Formulary.
E
Emergency Medical Condition: An illness, injury, symptom (including severe pain), or condition severe enough
that a reasonable person would seek medical attention right away.
Emergency Medical Transportation: Ambulance services for an emergency medical condition.
Emergency Services: Services to check for or treat an emergency medical condition.
Employer Mandate: Provision of the Affordable Care Act that requires certain employers with at least 50 full-
time employees (including full-time equivalents) to offer health insurance coverage to their full-time
employees (and their dependents) that meets certain affordability and minimum value standards, or pay a
penalty tax. The employer mandate is often referred to as “pay or play.” Click here for more information.
Employer Shared Responsibility Provision: See Employer Mandate.
Essential Health Benefits: A set of 10 categories of services health insurance plans must cover under
the Affordable Care Act. These include doctors’ services, inpatient and outpatient hospital care, prescription
drug coverage, pregnancy and childbirth, mental health services, and more. Click here for more information.
Exchange: See Health Insurance Marketplace.
Excluded Services: Health care services that a plan does not pay for or cover.
F
Flexible Spending Arrangement (FSA): See Health Flexible Spending Arrangement.
Formulary: A list of prescription drugs covered by a prescription drug plan or another insurance plan offering
prescription drug benefits. A formulary is also often called a drug list.
Fully Insured Plan: A health plan purchased by an employer from an insurance company.
G
Generic Drug: A drug that has the same active-ingredient formula as a brand-name drug.
Grandfathered Health Plan: A group health plan that was created—or an individual health insurance
policy that was purchased—on or before March 23, 2010. Grandfathered health plans are exempted from
many changes required under the Affordable Care Act. Plans or policies may lose their “grandfathered”
status if they make certain significant changes that reduce benefits or increase costs to consumers. A health
plan must disclose in its plan materials whether it considers itself to be a grandfathered plan and must also
provide consumers with contact information for questions or complaints.
Group Health Plan: In general, a health plan offered by an employer or employee organization that provides
health coverage to employees and their families.
H
Health Care Provider: An individual or facility that provides health care services. Examples include a doctor,
nurse, chiropractor, physician assistant, hospital, surgical center, skilled nursing facility, and rehabilitation center.
Health Flexible Spending Arrangement (Health FSA): An arrangement an individual establishes through his or
her employer to pay for out-of-pocket medical expenses with tax-free dollars. These expenses include
insurance copays and deductibles, and qualified prescription drugs, insulin, and medical devices.
Contributions to an FSA are subject to an annual limit that is adjusted for inflation each year. These
arrangements are also referred to as Health Flexible Spending Accounts.
Health Insurance: A contract that requires a health insurance company to pay some or all of a plan
participant’s health care costs in exchange for a premium.
Health Insurance Marketplace: A service that helps people shop for and enroll in health insurance. The
federal government operates the Marketplace, available at HealthCare.gov, for most states. Some states run
their own Health Insurance Marketplaces.
Health Maintenance Organization (HMO): A type of health insurance plan that usually limits coverage to care
from doctors who work for or contract with the HMO. There are generally two main types of HMOs:

  • Traditional HMO: This type of HMO provides no benefits for services obtained outside of a network.
  • Open-Access HMO: This type of HMO allows enrollees to receive services from an out-of-
    network provider at a higher cost than the enrollee would pay at an in-network provider. The
    additional costs may be in the form of higher deductibles, copays, or coinsurance.

Health Reimbursement Arrangement (HRA): Employer-funded group health plans from which employees are
reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused amounts
may be rolled over to be used in subsequent years. Also referred to as a Health Reimbursement Account.
Health Savings Account (HSA): A type of savings account that allows an individual to set aside money on a
pre-tax basis to pay for qualified medical expenses, if he or she has a high deductible health plan. HSA
contributions are subject to an annual limit that is adjusted for inflation each year.
High Deductible Health Plan (HDHP): A plan with a higher deductible than a traditional insurance plan. To be
considered an HDHP, the plan must meet minimum deductible and maximum out-of-pocket limit
requirements, which are annually adjusted for inflation.
High-Risk Pool Plan: A state-subsidized health plan that provides coverage for individuals with expensive pre-
existing health care conditions.
Home Health Care: Health care services and supplies an individual receives in his or her home under doctor’s
orders. Services may be provided by nurses, therapists, social workers, or other licensed health care providers.
Hospice Services: Services to provide comfort and support for persons in the last stages of a terminal illness.
Hospitalization: Care in a hospital that requires admission as an inpatient and usually requires an overnight stay.
I
Individual Health Insurance Policy: Insurance policy for an individual who is not covered under an employer-
sponsored plan.
Individual Mandate: Provision of the Affordable Care Act that requires every individual to have minimum
essential coverage for each month, qualify for an exemption, or make a penalty payment when filing his or
her federal income tax return.
Individual Shared Responsibility Provision: See Individual Mandate.
In-Network: Health care providers (e.g., specialists, hospitals, laboratories) that have accepted contracted
rates with the insurer in order to participate in the insurer’s network. The insured person typically pays a lower
price for using services within the network.
Inpatient Care: Health care that an individual receives when formally admitted as a patient to a health care
facility, like a hospital or skilled nursing facility.
Internal Limit: Limitation that applies to individual categories of care—for example, a $250-per-
procedure deductible for inpatient surgery.
L
Lifetime Limit: A cap on the total lifetime benefits a plan participant may receive from his or her insurance
company. After a lifetime limit is reached, the insurance plan will no longer pay for covered services.
M
Mail-Order Drugs: Drugs that can be ordered through the mail.
Marketplace: See Health Insurance Marketplace.
Medicaid: A joint state and federal insurance program that provides free or low-cost health coverage to
some low-income people, families, children, pregnant women, the elderly, and people with disabilities.
Medical Care: Services rendered by a hospital or qualified medical care provider.
Medical Loss Ratio (MLR): A basic financial measurement used in the Affordable Care Act to encourage
health plans to provide value to enrollees. If an insurer uses 80 cents out of every premium dollar to pay its
customers’ medical claims and activities that improve the quality of care, the company has a medical loss
ratio of 80%. A medical loss ratio of 80% indicates that the insurer is using the remaining 20 cents of each
premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and
agent commissions. The Affordable Care Act sets minimum medical loss ratios for different markets, as do
some state laws.
Medicare: A federal health insurance program for people aged 65 and older, certain younger people with
disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a
transplant, sometimes called ESRD). Medicare consists of four parts:

    • Medicare Part A: Covers hospital, skilled nursing, nursing home, hospice, and home health services care.
    • Medicare Part B: Covers medically necessary and preventive services.
    • Medicare Part C (Medicare Advantage): A type of Medicare health plan offered by a private
      company that contracts with Medicare to provide the beneficiary with all of his or her Part A and Part B
      benefits.
    • Medicare Part D: A program that helps pay for prescription drugs for people with Medicare who join a
      plan that includes Medicare prescription drug coverage. There are two ways to get Medicare
      prescription drug coverage: through a Medicare Prescription Drug Plan or a Medicare Advantage Plan
      that includes drug coverage, both of which are offered by insurance companies and other private
      companies approved by Medicare.

Minimum Essential Coverage (MEC): Any insurance plan that meets the Affordable Care Act requirement for
having health coverage (sometimes called qualifying health coverage). Individuals without minimum
essential coverage may be subject to the individual mandate penalty.
Minimum Value: A standard of minimum coverage that applies to employer-sponsored health plans. Click
here for more information.
N
Network: The facilities, providers, and suppliers a health insurer or plan has contracted with to provide health
care services.
O
Obamacare: See Affordable Care Act.
Open-Access HMO: A type of HMO that allows enrollees to receive services from an out-of-network provider
at a higher cost than the enrollee would pay at an in-network provider. The additional costs may be in the
form of higher deductibles, copays, or coinsurance.
Open Enrollment Period: The yearly period when people can enroll in a health insurance plan.
Out-of-Network: Services received outside an insurer’s network. These services typically carry a higher cost to
the insured person.
Out-of-Pocket Costs: Expenses for medical care that are not reimbursed by insurance. Out-of-pocket costs
include deductibles, coinsurance, and copays for covered services, plus all costs for services that are not
covered.
Out-of-Pocket Limit: The most a plan participant can be required to pay for covered services in a plan year.
The out-of-pocket limit does not include monthly premium amounts or spending for services the plan does not
cover. An out-of-pocket limit is also often called an “out-of-pocket maximum.”
Out-of-Pocket Maximum: See Out-of-Pocket Limit.
Outpatient Care: Care received where a doctor has not written an order to admit the individual to a hospital
as an inpatient (in these cases, an individual is an outpatient even if he or she spends the night in the hospital,
but typically it does not require an overnight hospital stay).
P
“Pay or Play”: See Employer Mandate.
Physician Services: Health care services a licensed medical physician provides or coordinates.
Plan Year: A 12-month period of benefits coverage under a group health plan. This 12-month period need not
align with the calendar year.
Preauthorization: A decision by a health plan that a health care service or product is medically necessary. A
health plan may require preauthorization for certain services before they are provided (except in an
emergency), though preauthorization is not a promise by a health plan to cover the cost.
Pre-Existing Condition: A health problem an individual had before the date that his or her new health
coverage starts.
Pre-Existing Condition Exclusion Period: The period during which an insurance policy will not pay for care
relating to a pre-existing condition.
Preferred Provider Organization (PPO): A type of health plan that contracts with medical providers, such as
hospitals and doctors, to create a network of participating providers. Under a PPO, a plan participant pays
less in out-of-pocket costs if he or she uses providers that belong to the PPO’s network.
Premium: The amount a plan participant pays for his or her health insurance every month.
Premium Tax Credit: A tax credit an individual can use to lower his or her premium when he or she enrolls in a
plan through the Health Insurance Marketplace. The Premium Tax Credit is based on the income estimate
and household information the individual provides on his or her Health Insurance Marketplace application.
Prescription Drugs: Drugs and medications that, by law, require a prescription.
Prescription Drug Coverage: A health plan that helps pay for prescription drugs and medications.
Preventive Services: Routine health care that includes screenings, check-ups, and patient counseling to
prevent health problems.
Primary Care: Health services that cover a range of prevention, wellness, and treatment programs for
common illnesses.
Primary Care Provider: A physician, nurse practitioner, clinical nurse specialist, or physician assistant who
provides, coordinates, or helps an individual access a range of primary care services.
Q
Qualified Health Plan: An insurance plan that is certified by the Health Insurance Marketplace,
provides essential health benefits, follows established limits on cost sharing (like deductibles, copays, and out-
of-pocket limits), and meets other requirements under the Affordable Care Act. All qualified health plans
meet the minimum essential coverage requirement.
R
Referral: A written order from a primary care provider directing a patient to see a specialist or receive certain
health care services. Under many health plans, a plan participant must obtain a referral before he or she can
receive health care services from anyone except his or her primary care provider.
Rehabilitation Services: Health care services that help an individual keep, get back, or improve skills and
functioning for daily living that have been lost or impaired because he or she was sick, hurt, or disabled. These
services may include physical and occupational therapy, speech therapy, and psychiatric rehabilitation
services in a variety of inpatient and outpatient settings.
Rescission: The retroactive cancellation of a health insurance policy. Insurance companies will sometimes
retroactively cancel an entire individual health insurance policy if an individual made a mistake on his or her
application for the policy that amounts to fraud or an intentional misrepresentation of material fact.
S
Screening: A type of preventive service that includes tests or exams to detect the presence of a health issue,
usually performed when an individual has no symptoms, signs, or prevailing medical history of a disease or
condition.
Self-Insured Plan: Type of plan, usually present in larger companies, where the employer itself collects
premiums from enrollees and takes on the responsibility of paying employees’ and dependents’ medical
claims. These employers often contract with a third-party administrator for services such as enrollment, claims
processing, and provider networks.
Skilled Nursing Care: Services from licensed nurses in an individual’s home or in a nursing home.
Special Enrollment Period (SEP): A time outside the yearly Open Enrollment Period when an individual can sign
up for health insurance. An individual typically qualifies for a Special Enrollment Period as a result of certain
life events, such as losing other health coverage, moving, getting married, having a baby, or adopting a
child. By law, employer-sponsored plans must provide a special enrollment period of at least 30 days.
Specialist: A health care provider focusing on a specific area of medicine or group of patients to diagnose,
manage, prevent, or treat certain types of symptoms and conditions.
Summary of Benefits and Coverage (SBC): An easy-to-read summary that allows an individual to make
apples-to-apples comparisons of costs and coverage between health plans. An individual most commonly
receives an SBC when he or she shops for coverage or renews or changes coverage.
T
Traditional HMO: A type of HMO that provides no benefits for services obtained outside of a network.
TRICARE: A health care program for active-duty and retired uniformed service members and their families.
U
Urgent Care: Care for an illness, injury, or condition serious enough that a reasonable person would seek care
right away, but not so severe that it requires emergency room care.
Usual, Customary, and Reasonable Charge (UCR): The amount paid for a medical service in a geographic
area based on what providers in the area usually charge for the same or similar medical service. The UCR
amount is sometimes used to determine the allowed amount.
V
Vision Coverage: A health benefit that at least partially covers vision care, such as eye exams and glasses.
W
Waiting Period: The time that must pass before coverage can become effective for an employee or
dependent who is otherwise eligible for coverage under an employer-sponsored health plan.
Well-Baby/Well-Child Care: Routine doctor visits for comprehensive preventive health services that occur
when a child is 2 years of age or younger, and annual visits until a child reaches age 21. Services include
physical exams and measurements, vision and hearing screenings, and oral health risk assessments.

It is intended to serve as a tool to assist you in understanding some of the most common terms. Call (855) 667-4621 for more info.

Takeaways from Senate’s “Better Care Reconciliation Act”

Takeaways from Senate’s “Better Care Reconciliation Act”

by | Jun 22, 2017

Takeaways from Senate’s “Better Care Reconciliation Act”

The much ballyhooed Senate Republican health reform overhaul – the “Better Care Reconciliation Act of 2017” – was released today after weeks of intrigue.

The politics of the legislation are unclear, as GOP leaders have virtually no margin for error in a vote that Majority Leader Mitch McConnell intends to push by the end of next week. They may lose only two votes, assuming Vice President Mike Pence will cast the deciding party-line vote.

The Council is extremely pleased to note that the legislation leaves the employer/employee “exclusion” from taxation on group health benefits untouched.

Taxing employee premiums is a major threat during this process as Congress looks to increase revenue for the measure.

We’re also gratified that the “Cadillac Tax” on high cost health plans would continue to be delayed until 2025.

The House-passed American Health Care Act also included a provision that would delay implementation of the tax until 2025 (from the current law which would implement the tax in 2018).  We will continue our efforts to see a complete elimination of the Cadillac Tax.

Top Level PoliticsConsidering the fact that preservation of the employer-provided group health insurance marketplace has been the top priority of The Council’s for years, we are relieved and grateful at these provisions.The fight going forward is going to be over the reoriented subsidies and Medicaid. There is nothing explicit that allows states to waive out of anything new but the general waiver requirements process has been expanded.The significant problems in the individual and exchange marketplaces, and corresponding cuts to the federal safety net of Medicaid, will have consequences for years to come on the entirety of the health care ecosystem – as evidenced by the growing political movements on the left in support of single-payer health coverage.As we continue to digest the political and practical consequences of this legislation, we will be issuing a summaryof key provisions of the legislation as prepared by our legal team at Steptoe & Johnson, later this afternoon.

Highlights

  • Zeros out individual and employer mandates
  • Modifies but keeps the individual credits; ties credits to age bands (5) and reduces eligibility to families under 350% of poverty line (from 400 before), but if you have access to employer coverage, you are ineligible with no requirement that the employer coverage be “affordable”
  • Eliminates small business tax credit regime for health care insurance after 12/31/19 AND between now and then small business health plans are ineligible for the credit if they cover abortion services
  • Generally repeals all of the taxes in effect after 12/31/17. The Medicare excise tax does not go away until after 12/31/2022 but net investment tax goes away effective 12/31/16.
  • ACA HSA and FSA limits repealed so back to the $5,000 caps
  • Other HSA reforms are same as in AHCA – increases the maximum contribution (to be equal to the plans out of pocket limits); allows spousal and catch-up contributions; and allows expenses incurred within 60 days of establishing an HSA to be covered. Does not deal with on-site medical clinic or telemedicine issue.
  • Eliminates federal MLR rebate regime after next year but requires each State to establish its own MLR regime with rebates
  • Most Significant Development: allows for the establishment of association health plans as large group plans for small businesses/individuals. These plans would be exempt from the community rating and essential benefit requirements imposed on small group and individual plans.

Click here for a chart comparing the ACA, the AHCA and the Better Care Reconciliation Act.

 

Risk Adjustment, Reinsurance, and Risk Corridors

Risk Adjustment, Reinsurance, and Risk Corridors

by | Sep 7, 2016 | group health insurance, Health Care Reform, Health Exchanges, healthcare, Individual Exchanges, State Exchanges

Risk Adjustment, Reinsurance, and Risk Corridors ACA's 3 R

Leading  explanation of ACA’s 3 R’s Risk Adjustment, Reinsurance, and Risk Corridors of health insurance reform from Kaiser Family Foundation.  By Aug 17, 2016 | Cynthia Cox , Ashley Semanskee, Gary Claxton, and Larry Levitt

As of January 1, 2014, insurers are no longer able to deny coverage or charge higher premiums based on preexisting conditions (under rules referred to as guaranteed issue and modified community rating, respectively). These aspects of the Affordable Care Act (ACA) – along with tax credits for low and middle income people buying insurance on their own in new health insurance marketplaces – make it easier for people with preexisting conditions to gain insurance coverage. However, if not accompanied by other regulatory measures, these provisions could have unintended consequences for the insurance market. Namely, insurers may try to compete by avoiding sicker enrollees rather than by providing the best value to consumers. In addition, in the early years of market reform insurers faced uncertainty as to how to price coverage as new people (including those previously considered “uninsurable”) gained coverage, potentially leading to premium volatility. This brief explains three provisions of the ACA – risk adjustment, reinsurance, and risk corridors – that were intended to promote insurer competition on the basis of quality and value and promote insurance market stability, particularly in the early years of reform.

Background: Adverse Selection & Risk Selection

One concern with the guaranteed availability of insurance is that consumers who are most in need of health care may be more likely to purchase insurance. This phenomenon, known as adverse selection, can lead to higher average premiums, thereby disrupting the insurance market and undermining the goals of reform. Uncertainty about the health status of enrollees could also make insurers cautious about offering plans in a reformed individual market or cause them to be overly conservative in setting premiums. To discourage behavior that could lead to adverse selection, the ACA makes it difficult for people to wait until they are sick to purchase insurance (i.e. by limiting open enrollment periods, requiring most people to have insurance coverage or pay a penalty, and providing subsidies to help with the cost of insurance).

Risk selection is a related concern, which occurs when insurers have an incentive to avoid enrolling people who are in worse health and likely to require costly medical care. Under the ACA, insurers are no longer permitted to deny coverage or charge higher premiums on the basis of health status. However, insurers may still try to attract healthier clients by making their products unattractive to people with expensive health conditions (e.g., in what benefits they cover or through their drug formularies). Or, certain products (e.g., ones with higher deductibles and lower premiums) may be inherently more attractive to healthier individuals. This type of risk selection has the potential to make the market less efficient because insurers may compete on the basis of attracting healthier people to enroll, as opposed to competing by providing the most value to consumers.

The ACA’s risk adjustment, reinsurance, and risk corridors programs were intended to protect against the negative effects of adverse selection and risk selection, and also work to stabilize premiums, particularly during the initial years of ACA implementation.

Each program varies by the types of plans that participate, the level of government responsible for oversight, the criteria for charges and payments, the sources of funds, and the duration of the program. The table below outlines the basic characteristics of each program.

Table 1: Summary of Risk and Market Stabilization Programs in the Affordable Care Act
Risk AdjustmentReinsuranceRisk Corridors
What

the program does

Redistributes funds from plans with lower-risk enrollees to plans with higher-risk enrolleesProvides payment to plans that enroll higher-cost individualsLimits losses and gains beyond an allowable range
Why

it was enacted

Protects against adverse selection and risk selection in the individual and small group markets, inside and outside the exchanges by spreading financial risk across the marketsProtects against premium increases in the individual market by offsetting the expenses of high-cost individualsStabilizes premiums and protects against inaccurate premium setting during initial years of the reform
Who

participates

Non-grandfathered individual and small group market plans, both inside and outside of the exchangesAll health insurance issuers and  self-insured plans contribute funds; individual market plans subject to new market rules (both inside and outside the exchange) are eligible for paymentQualified Health Plans (QHPs), which are plans qualified to be offered on a health insurance marketplace (also called exchange)
How

 it works

Plans’ average actuarial risk will be determined based on enrollees’ individual risk scores.  Plans with lower actuarial risk will make payments to higher risk plans.

Payments net to zero.

If an enrollee’s costs exceed a certain threshold (called an attachment point), the plan is eligible for payment (up to the reinsurance cap).

Payments net to zero.

HHS collects funds from plans with lower than expected claims and makes payments to plans with higher than expected claims. Plans with actual claims less than 97% of target amounts pay into the program and plans with claims greater than 103% of target amounts receive funds.

Payments net to zero.

When

it goes into effect

2014, onward          (Permanent)2014 – 2016                         (Temporary – 3 years)2014 – 2016
(Temporary – 3 years)

Risk Adjustment

The ACA’s risk adjustment program is intended to reinforce market rules that prohibit risk selection by insurers.  Risk adjustment accomplishes this by transferring funds from plans with lower-risk enrollees to plans with higher-risk enrollees. The goal of the risk adjustment program is to encourage insurers to compete based on the value and efficiency of their plans rather than by attracting healthier enrollees.   To the extent that risk selecting behavior by insurers – or decisions made by enrollees – drive up costs in the health insurance marketplaces (for example, if insurers selling outside the Exchange try to keep premiums low by steering sick applicants to Exchange coverage), risk adjustment also works to stabilize premiums and the cost of tax credit subsidies to the federal government.

Figure 1: Risk Adjustment Under the Affordable Care Act

Figure 1: Risk Adjustment Under the Affordable Care Act

Program Participation

The risk adjustment program applies to non-grandfathered plans in the individual and small group insurance markets, both inside and outside of the exchanges, with some exceptions. Plans in existence at the time the ACA was enacted in March 2010 were grandfathered under the law and are subject to fewer requirements. Plans lose their grandfathered status if they make significant changes (such as significantly increasing cost-sharing or imposing new annual benefit limits). Plans that were renewed prior to January 1, 2014, and are therefore not subject to most ACA requirements, are not part of the risk adjustment system. Multi-state plans and Consumer Operated and Oriented Plans (COOP) are subject to risk adjustment. Unless a state chooses to combine its individual and small group markets, separate risk adjustment systems operate in each market.

Government Oversight

States operating an exchange have the option to either establish their own state-run risk adjustment program or allow the federal government to run the program. States choosing not to operate an exchange or marketplace (and thus utilizing the federally-run exchange, called the Health Insurance Marketplace) do not have the option to run their own risk adjustment programs and must use the federal model. In states for which HHS operates risk adjustment, issuers are charged a fee to cover the costs of administering the program.

HHS developed a federally-certified risk adjustment methodology to be used by states or by HHS on behalf of states. States electing to use an alternative model must first seek federal approval and must submit yearly reports to HHS. States electing to run their own risk adjustment program must publish a notice of benefit and payment parameters by March 1 of the year prior to the benefit year; otherwise they will forgo the option to deviate from the federal methodology. Once a state’s alternative methodology is approved, it becomes federally-certified and can be used by other states. Massachusetts, the only state so far to operate its own risk adjustment program, will end is program in 2017. In 2017, HHS will operate risk adjustment programs in all states.

Calculation of Payments & Charges

Under risk adjustment, eligible insurers are compared based on the average financial risk of their enrollees. The HHS methodology estimates financial risk using enrollee demographics and claims for specified medical diagnoses. It then compares plans in each geographic area and market segment based on the average risk of their enrollees, in order to assess which plans will be charged and which will be issued payments.

Under HHS’s methodology, individual risk scores – based on each individual’s age, sex, and diagnoses – are assigned to each enrollee. Diagnoses are grouped into a Hierarchical Condition Category (HCC) and assigned a numeric value that represents the relative expenditures a plan is likely to incur for an enrollee with a given category of medical diagnosis. If an enrollee has multiple, unrelated diagnoses (such as prostate cancer and arthritis), both HCC values are used in calculating the individual risk score. Additionally, if an adult enrollee has certain combinations of illnesses (such as a severe illness and an opportunistic infection), an interaction factor is added to the person’s individual risk score. Finally, if the enrollee is receiving subsidies to reduce their cost-sharing, an induced utilization factor is applied to account for induced demand. Plans with enrollees that receive cost-sharing reductions under the ACA receive an adjustment because cost-sharing reductions may induce demand for health care and are not otherwise accounted for in the other premium stabilization programs. Once individual risk scores are calculated for all enrollees in the plan, these values are averaged across the plan to arrive at the plan’s average risk score. The average risk score, which is a weighted average of all enrollees’ individual risk scores, represents the plan’s predicted expenses. Under the HHS methodology, adjustments are made for a variety of factors, including actuarial value (i.e., the extent of patient cost-sharing in the plan), allowable rating variation, and geographic cost variation.   Under risk adjustment, plans with a relatively low average risk score make payments into the system, while plans with relatively high average risk scores receive payments.

Transfers (both payments and charges) are calculated by comparing each plan’s average risk score to a baseline premium (the average premium in the state). Transfers are calculated for each geographic rating area, such that insurers offering coverage in multiple rating areas in a given state have multiple transfer amounts that are grouped into a single invoice. Transfers within a given state net to zero.

On March 25, 2016, CMS hosted a public conference and released a white paper to review risk adjustment methodology and build on the first several years of experience. The white paper examined proposals to account for partial year enrollees and prescription drug use in the risk adjustment model. CMS intends to propose that the risk adjustment model begin to account for partial year enrollees in the 2017 benefit year, and begin to account for prescription drug utilization in the 2018 benefit year. Beginning in 2017, HHS will also begin to incorporate preventive services into their simulation of plan liability, and will incorporate different trend factors for traditional drugs, specialty drugs, and medical and surgical expenditures. This is intended to better reflect the growth of prescription drug expenditures compared to other medical expenditures. The risk adjustment model will be recalibrated using the most recent claims data from the Truven Health Analytics 2012, 2013, and 2014 MarketScan Commercial Claims and Encounters database (MarketScan). In response to issuer feedback from the 2014 benefit year of the risk adjustment program, CMS will also begin providing insurers with early estimates of health plan specific risk adjustment calculations. This is intended to give plans more timely information in order to set premiums. In addition, CMS has indicated that it is exploring other options to modify the permanent risk adjustment program to better adjust for higher-cost enrollees, as the temporary reinsurance program phases out in 2016.

Data Collection & Privacy

Under the federal risk adjustment program, to protect consumer privacy and confidentiality, insurers are responsible for providing HHS with de-identified data, including enrollees’ individual risk scores. States are not required to use this model of data collection, but are required to only collect information reasonably necessary to operate the risk adjustment program and are prohibited from collecting personally identifiable information. Insurers may require providers and suppliers to submit the appropriate data needed for risk adjustment calculations.

For each benefit year, an issuer of a risk adjustment covered plan or a reinsurance-eligible plan must establish a dedicated data environment (i.e. an EDGE server) and provide data access to HHS, in a timeframe specified by HHS, to be eligible for risk adjustment and/or reinsurance payments. CMS released guidance for EDGE Data submissions for the 2015 benefit year.

To ensure accurate reporting, HHS recommends that insurers first validate their data through an independent audit and then submit the data to HHS for a second audit.  For the first two benefit years (2014 and 2015) no adjustments to payments or charges were made as HHS optimized the data validation process. In 2016 and onward, if an issuer fails to establish a dedicated distributed data environment, fails to submit risk adjustment data, or if any errors are found through these audits, the insurer’s average actuarial risk will be adjusted, along with any payments or charges. Because the audit process is expected to take more than one year to complete, the first adjustments to payments (for the 2016 benefit year) will be issued in 2018.  Any issuer that fails to provide HHS access to EDGE server data in time to assess payments will be assessed a default risk adjustment charge. In 2015, 817 of 821 issuers participating in the risk adjustment program submitted the EDGE server data necessary to calculate risk adjustment transfers and 4 issuers were assessed the default charge.

Payments for the 2014 and 2015 Benefit Years

On Oct 1, 2015, HHS announced the results of the reinsurance, risk adjustment, and risk corridors programs for the first benefit year, 2014. For the 2014 benefit year of the risk adjustment program, $4.6 billion was transferred among insurers, and 758 total issuers participated in the program. An independent analysis found that the relative health of enrollees was the main determinant of whether an issuer received a risk adjustment payment. CMS reports that this is a sign that the risk adjustment formula is working as intended in transferring payments from plans with healthier enrollees to plans with sicker enrollees.

On June 30, 2016, HHS released a summary report on the results of the reinsurance and risk adjustment programs for the 2015 benefit year. For the 2015 benefit year of the risk adjustment program, risk adjustment transfers averaged 10% of premiums in the individual market and 6% of premiums in the small group market, similar to 2014. 821 issuers participated in the risk adjustment program. HHS also made available to each issuer of a risk adjustment covered plan a report that includes the issuer’s risk adjustment payment or charge.

Risk adjustment payments to issuers for benefit year 2015 will be sequestered at a rate of 7%, per government sequestration requirements for fiscal year 2016. HHS has suggested that risk adjustment payments sequestered in fiscal year 2016 will become available for payment to issuers in fiscal year 2017 without further Congressional action.

Reinsurance

The goal of the ACA’s temporary reinsurance program was to stabilize individual market premiums during the early years of new market reforms (e.g. guaranteed issue). The temporary program is in place from 2014 through 2016. The program transfers funds to individual market insurance plans with higher-cost enrollees in order to reduce the incentive for insurers to charge higher premiums due to new market reforms that guarantee the availability of coverage regardless of health status.

Reinsurance differs from risk adjustment in that reinsurance is meant to stabilize premiums by reducing the incentive for insurers to charge higher premiums due to concerns about higher-risk people enrolling early in the program, whereas risk adjustment is meant to stabilize premiums by mitigating the effects of risk selection across plans. Thus, reinsurance payments are only made to individual market plans that are subject to new market rules (e.g., guaranteed issue), whereas risk adjustment payments are made to both individual and small group plans. Additionally, reinsurance payments are based on actual costs, whereas risk adjustment payments are based on expected costs. As reinsurance is based on actual rather than predicted costs, reinsurance payments will also account for low-risk individuals who may have unexpectedly high costs (such as costs incurred due to an accident or sudden onset of an illness). Under reinsurance, some plans may receive payments for high-cost/high-risk enrollees, and still be eligible for payment for those enrollees under risk adjustment.

While risk adjustment payments net to zero within the individual and small group markets, reinsurance payments represent a net flow of dollars into the individual market, in effect subsidizing premiums in that market for a period of time.  To cover the costs of reinsurance payments and administering the program, funds are collected from all health insurance issuers and third party administrators (including those in the individual and group markets). HHS issues reinsurance payments to plans based on need, rather than issuing payments proportional to the amount of contributions from each state.

Figure 2: Reinsurance Under the Affordable Care Act

Figure 2: Reinsurance Under the Affordable Care Act

Program Participation

All individual, small group, and large group market issuers of fully-insured major medical products, as well as self-funded plans, contribute funds to the reinsurance program. Reinsurance payments are made to individual market issuers that cover high-cost individuals (and are subject to the ACA’s market rules). State high risk pools are excluded from the program.

Government Oversight

States have the option to operate their own reinsurance program or allow HHS to run one for the state. For states that choose to operate their own reinsurance program, there is no formal HHS approval process. However, states’ ability to deviate from the HHS guidelines is limited: HHS collects all reinsurance contributions – even if the program is state-run – and all states must follow a national payment schedule. Additionally, states that wish to modify data requirements must publish a notice of benefit and payment parameters. States may collect additional funds if they believe the cost of reinsurance payments and program administration will exceed the amount specified at the national level. States wishing to continue reinsurance programs after 2016 may do so, but they may not continue to use funds collected as part of the ACA’s reinsurance program after the year 2018. Connecticut was the only state to operate its own reinsurance program for benefit years 2014 and 2015. In July 2016, Alaska signed into law a two-year reinsurance program that recreates Alaska’s high-risk pool as a reinsurance fund. Alaska’s reinsurance program will cover claims for 2015 and 2016 benefit years.

Calculation of Payments and Charges

The ACA set national levels for reinsurance funds at $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016.  Based on estimates of the number of enrollees, HHS set a uniform reinsurance contribution rate of $63 per person in 2014, $44 per person in 2015, and $27 per person in 2016.

Eligible insurance plans received reinsurance payments when the plan’s cost for an enrollee crossed a certain threshold, called an attachment point. HHS set the attachment point (a dollar amount of insurer costs, above which the insurer is eligible for reinsurance payments) at $45,000 in 2014 and 2015. Given the smaller reinsurance payments pool for 2016, HHS raised the attachment point to $90,000 for the 2016 benefit year. HHS also set a reinsurance cap (a dollar-amount threshold, above which the insurer is no longer eligible for reinsurance) at $250,000 in 2014, 2015, and 2016. HHS initially set the coinsurance rate (the percentage of the costs above an attachment point and below the reinsurance cap that were reimbursed through the reinsurance program) at 80 percent in 2014 and 50 percent in 2015 and 2016.  If reinsurance contributions exceeded the amount of payments requested, then that year’s reinsurance payments to insurers were increased proportionately (i.e. the coinsurance rate increased up to 100%). For example, in 2014, HHS was ultimately able to pay out 100 percent of claims rather than 80 percent, and in 2015 HHS raised the coinsurance rate to 55.1 percent. If surplus reinsurance funds remained available, they were rolled forward to the next benefit year. For example, $1.7 billion in surplus reinsurance funds collected for the 2014 benefit year were rolled forward to the 2015 benefit year. Similarly, if reinsurance contributions had fallen short of the amount requested for payments, then that year’s reinsurance payments would have decreased proportionately. Overall, total payments could not exceed the amount collected through contributions by insurers and third-party administrators.

States opting to raise additional reinsurance funds may do so by decreasing the attachment point, increasing the reinsurance cap, and/or increasing the coinsurance rate. States may not make changes to the national attachment point, reinsurance cap, or coinsurance rate that would result in lower reinsurance payments.

Data Collection & Privacy

Payment amounts made to eligible individual market insurers were based on medical cost data (to identify high-cost enrollees, for which plans receive reinsurance payment). Therefore, in order to calculate reinsurance payments, HHS or state reinsurance entities must either collect or be allowed access to claims data as well as data on cost-sharing reductions (because reinsurance payments were not made for costs that have already been reimbursed through cost sharing subsidies). In states for which HHS ran the reinsurance program, HHS used the same distributed data collection approach used for the risk adjustment program (i.e. an EDGE server) and similarly ensured that the collection of personally identifiable information was limited to that necessary to calculate payments. HHS proposed to conduct audits of participating insurers as well as states conducting their own reinsurance programs.

For the first two benefit years (2014 and 2015) no adjustments to reinsurance payments were made as HHS optimized the data validation process. In 2016, if an issuer fails to establish a dedicated distributed data environment or fails to adhere to reinsurance data submission requirements, the insurer may forfeit reinsurance payments. In 2015, 574 of 575 issuers participating in the reinsurance program submitted the EDGE server data necessary to calculate reinsurance payments.

Payments for the 2014 and 2015 Benefit Years

In June 2015, CMS announced the results of the reinsurance program for the first benefit year, 2014. In 2014, reinsurance contributions ($9.7 billion) exceeded requests for payments ($7.9 billion) and CMS was able to payout 100 percent of eligible claims rather than 80 percent – this amounted to $7.9 billion in reinsurance payments made to 437 issuers nationwide. Following these payments, approximately $1.7 billion in surplus reinsurance funds from the 2014 benefit year remained available, and were rolled forward to the 2015 benefit year.

CMS used this surplus of $1.7 billion, combined with additional collections of reinsurance contributions for the 2015 benefit year, to make an early partial reinsurance payment to issuers for the 2015 benefit year in March and April 2016. CMS calculated this early payment based on accepted enrollment and claims data as of February 1, 2016, at a coinsurance rate of 25%. CMS stated that reinsurance funds not paid out through this early payment will be paid out in late 2016, as part of the standard reinsurance payment process.

On June 30, 2016, CMS announced the results of the reinsurance program for the second benefit year, 2015. In 2015, estimated reinsurance contributions ($6.5 billion) were smaller than requests for payments ($14.3 billion). CMS estimates it will make $7.8 billion in reinsurance payments to 497 of the 575 participating issuers nationwide at a coinsurance rate of 55.1%.

CMS has collected approximately $5.5 billion in reinsurance contributions for 2015, with approximately $1 billion more scheduled to be collected on or before November 15, 2016. Any reinsurance contribution amounts collected above $6 billion for the 2015 benefit year are required to be allocated to the U.S. Treasury on a pro rata basis as an operating expense of the program. Combined with the surplus of $1.7 billion from 2014, CMS estimates it will have approximately $7.8 billion in reinsurance contributions available to be distributed as payments to issuers for the 2015 benefit year. On June 30, 2016 HHS made available to each issuer of a reinsurance-eligible plan a report that includes the issuer’s initial, estimated reinsurance payment for the 2015 benefit year. On August 11, 2016, CMS released an analysis based on reinsurance payments that suggests per-enrollee costs in the individual market were essentially unchanged between 2014 and 2015.

Reinsurance payments to issuers for benefit year 2015 will be sequestered at a rate of 6.8% per government sequestration requirements for fiscal year 2016. HHS has suggested that risk adjustment payments sequestered in fiscal year 2016 will become available for payment to issuers in fiscal year 2017 without further Congressional action.

Risk Corridors

The ACA’s temporary risk corridor program was intended to promote accurate premiums in the early years of the exchanges (2014 through 2016) by discouraging insurers from setting premiums high in response to uncertainty about who will enroll and what they will cost. The program worked by cushioning insurers participating in exchanges and marketplaces from extreme gains and losses.

Figure 3: Risk Corridors Under the Affordable Care Act

Figure 3: Risk Corridors Under the Affordable Care Act

The Risk Corridors program set a target for exchange participating insurers to spend 80% of premium dollars on health care and quality improvement. Insurers with costs less than 3% of the target amount must pay into the risk corridors program; the funds collected were used to reimburse plans with costs that exceed 3% of the target amount.

This program was intended to work in conjunction with the ACA’s medical loss ratio (MLR) provision, which requires most individual and small group insurers to spend at least 80% of premium dollars on enrollee’s medical care and quality improvement expenses, or else issue a refund to enrollees.

Program Participation

All Qualified Health Plans (or QHPs, plans qualified to participate in the exchanges) were subject to the risk corridor program. Only those plans with expenses falling outside of allowable ranges made payments to the program (or qualified to receive payments). Qualified Health Plan (QHP) issuers may also offer QHPs outside of the exchange, in which case the QHP outside of the exchange were also subject to the risk corridors program.

Government Oversight

The risk corridor program was federally administered. HHS charged plans with larger than expected gains and made payments to plans with larger than expected losses.

Calculation of Payments and Charges

Each year, each Qualified Health Plan was assigned a target amount for what are called allowable costs (expenditures on medical care for enrollees and quality improvement activities) based on its premiums. Allowable costs included medical claims and costs associated with quality improvement efforts, as defined in the ACA’s medical loss ratio (MLR) calculations. Insurers must also account for any cost-sharing reductions received from HHS by reducing their allowable costs by this amount. If an insurer’s actual claims fell within plus or minus three percent of the target amount (i.e. premiums less allowable costs), it made no payments into the risk corridor program and received no payments from it. In other words, the plan was fully at risk for any loss or gain. QHPs with lower than expected claims paid into the risk corridor program:

  • A QHP with claims falling below its target amount by 3% – 8% paid HHS in the amount of 50% of the difference between its actual claims and 97% of its target amount.
  • A QHP with claims falling below its target amount by more than 8% paid 2.5 percent of the target amount plus 80% of the difference between their actual claims and 92% of its target.

HHS provides an example of an insurer with a $10 million target amount and actual claims of $8.8 million (or 88% of the target amount). The insurer would have to pay $570,000 to the risk corridors program because (2.5%*$10 million) + (80%*((92%*10 million)-8.8 million) = 570,000.

Conversely, HHS reimbursed plans with higher than expected costs:

  • A QHP with actual claims that exceeded its target amount by 3% to 8% received a payment in the amount of 50% of the amount in excess of 103% of the target.
  • A QHP with claims that exceed its target amount by more than 8% received payment in the amount of 2.5% of the target amount plus 80% of the amount in excess of 108% of the target.

In response to reports of individual market plan cancelations in November 2013, HHS instituted a transitional policy allowing certain plans to be reinstated if state regulators agree to adopt a similar transitional policy. As this policy change affected the composition of the exchange risk pool, HHS modified the risk corridors program in 2015 to change the way allowable costs are calculated (i.e., by increasing the ceiling on administrative costs and the profit margin floor by 2 percent).

In the original statute, risk corridor payments were not required to net to zero, meaning that the federal government could experience an increase in revenues or an increase in costs under the program.  However, in the 2015 and 2016 appropriations bills, Congress specified that payments under the risk corridor program made to insurers in 2015 could not exceed collections from that year, and that CMS cannot transfer funds from other accounts to pay for the risk corridors program. This made the risk corridors program revenue neutral –meaning that only contributions collected from insurers could be used to fund payments for the risk corridor program. In the event that claims exceeded funds collected in a given year, CMS paid out claims pro rata and carried over deficiencies to be paid in the following year before any other claims are paid in that year. If the three-year risk corridors program ends with outstanding claims, HHS has stated it will work with Congress to secure funding for outstanding risk corridors payments, subject to the availability of appropriations.

Data Collection & Privacy

In order to calculate payments and charges for the risk corridors program, QHPs were required to submit financial data to HHS, including the actual amount of premiums earned as well as any cost-sharing reductions received. To reduce the administrative burden on insurers, HHS tied the data collection and validation requirements for the risk corridors to that of the Medical Loss Ratio (MLR) provision of the ACA. HHS will also conduct audits for the risk corridors program in conjunction with audits for the reinsurance and risk corridors program to minimize the burden on insurers.

Payments for the 2014 Benefit Year

On October 1, 2015, CMS announced that total risk corridors claims for 2014 amounted to $2.87 billion, and that insurer risk corridor contributions totaled $362 million. As a result, risk corridor payments for 2014 claims were paid out at 12.6% of claims. CMS anticipates that the remaining claims for 2014 will be paid out from 2015 risk corridor collections, and any shortfalls from 2015 claims will be covered by 2016 collections in 2017.  If there are still outstanding claims when the risk corridors program ends in 2017, HHS has stated it will work with Congress to explore other sources of funding for risk corridor payments, subject to availability of appropriations.

Conclusion

The Affordable Care Act’s risk adjustment, reinsurance, and risk corridors programs were designed to work together to mitigate the potential effects of adverse selection and risk selection. All three programs aimed to provide stability in the early years of a reformed health insurance market, with risk adjustment continuing over the long-term. Many health insurance plans are subject to more than one premium stabilization program, and while the programs have similar goals, they are designed to be complementary. Specifically, risk adjustment is designed to mitigate any incentives for plans to attract healthier individuals and compensate those that enroll a disproportionately sick population. Risk corridors were intended to reduce overall financial uncertainty for insurers, though they largely did not fulfill that goal following congressional changes to the program. Reinsurance compensated plans for their high-cost enrollees, and by the nature of its financing provided a subsidy for individual market premiums generally over a three-year period. Premium increases are expected to be higher in 2017 in part due to the end of the reinsurance program.

The Henry J. Kaiser Family Foundation Headquarters: 2400 Sand Hill Road, Menlo Park, CA 94025 | Phone 650-854-9400
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Why are my rates going up?

Why are my rates going up?

by | Nov 14, 2013 | Health Care Reform, Health Exchanges, Healthy NY, Tax

Why are my rates going up? The recent 2014 health insurance rates  ranging in 15-20% increase is having a profound impact especially on small businesses. Benefits are furthermore deteriorating with new  deductibles adding a 10% to the out of pocket costs for a net total 25-30% rate increase.

No pre-existing condition. Several new cost  contributors aside from Essential Health Benefits Mandate are assigned. Recent articles such as Kaiser’s Popular Provision Of Obamacare Is Fueling Sticker Shock For Some Consumers attributes new Pre-Existing condition waiver as a factor.  Starting Jan 1, 2014 anyone with or without prior health insurance can get immediate treatment without a 12 month waiting period.  “But the provision also adds costs. To a larger degree than other requirements of the law, it is fueling the “sticker shock” now being voiced by some consumers about premiums for new policies, say industry experts.”  With the guaranteed issue there are unknown  costs that cannot be accounted for just yet.  Example: An uninsured individual we know is delaying needed surgeries until January for this reason.  The member will pay a $250/month premium and get a $40,000 surgery paid for immediately.  How many young healthy members are needed to offset this cost?

New Taxes.  The IRS Affordable Care Act Tax Provisions  is a handy itemized list. Several of these taxes such as MLR (Max Loss ratio) have been in effect.  New 2014 Taxes estimate  an additional 5.5% tax.  See New Taxes and Fees: What They’re for and Who Pays Them:

  • Transitional reinsurance fee. This is paid by fully insured and self-funded plans. The goal of the fee is to stabilize the individual markets by reimbursing companies who insure a disproportionately large number of individuals who are high utilizers of health care services. Fees will be collected between 2014, 2015, and 2016.
  • Health insurance providers’ fee, also referred to as a health insurance tax, annual fee, and insurer fee. This will be assessed annually beginning in 2014 on health insurance carriers. The total amount to be collected in 2014 is $8 billion. The tax is based on premiums and by some estimates is expected to have a cost impact of 2 to 2.5 percent in 2014, and higher in subsequent years.
  • Exchange fee. For 2014, our state’s online exchange marketplace is funded through federal start-up grants. But states that run their own exchange, such as Washington, have been tasked with implementing a funding mechanism after 2014. In the session that ended in June, the Washington State Legislature approved a funding plan for our exchange that authorizes the use of a current insurance premium tax for the qualified health plans (QHPs) sold in the exchange and, if necessary, an additional assessment on carriers who sell QHPs through the exchange.
  • Patient-Centered Outcome Research Institute (PCORI) fee (also known as comparative-effectiveness fee). Health insurance issuers and sponsors of self-funded group health plans will be assessed this annual fee beginning in 2012 and ending in 2019. It funds patient-centered outcomes research. PCORI is a nonprofit corporation whose mission is to help people make informed health care decisions, and improve health care delivery and outcomes. The Group Health Research Institute has received two research awards from PCORI to study ways to improve care for back pain, and connect patients with community resources.

 

Essential Health benefits. The quintessential question asked is why are my rates going up so much this year has multiple answers with new Essential Health Benefits leading the way.  The Essential Health Benefits Not Delayed essential-health-benefits-additional-benefits--higher-costs_510aef69edfe3article explains that The Affordable Care Act mandates that the plans include ten essential benefits, from care for pregnant mothers to substance abuse treatment.  Popular local plans such as Healthy NY and Brooklyn Healthworks have afforded coverage for over a decade are are missing  Mental Health, Chiropractic, and have a $3,000 Rx limit.   All Individual Healthy NY and Sole Proprietors are terminating this year .  Existing small businesses must buy the full version with Essential Health Benefits.

CASE: A Healthy Ny client just had an increase for singles from $412 to $519.  She is a successful generous Caterer who is covering majority of a staff of  10 employees which is unusual for that industry.  Her staff had an affordable benefits as well.  They  loved paying only $20, her Rx copay was only $10/generic and $20/brand for providers she did not have any deductibles.  Hospitalization had full coverage with a modest copay.  Statistically  nearly 90% do not use more than $3,000 Rx.  her new plan rolls automatically into the GOLD PLAN increasing her premium 25% along with a new $600 deductible on all benefits and a $40 copay for Specialist.  She asked me I thought the new tax was only .9% medicare tax but evidently this IS HER NEW TAX.

So much for if you like your plan you can keep it promise. Even supporters such as Former President ClintonWeighs in on Obamacare. “Obama should honor his health-care promise: Pres. Clinton”,  He personally believes President Barack Obama should honor his promise that people who have and like their insurance can keep it.

Do not under estimate the power of the Bill.  The President is reviewing ways to allow some to keep their health plan but this would only apply to policyholders losing coverage.   Stay tuned.

You can download the complete Essential Health Benefits NYS.  Also, for a downloadable guide on self-insuring and secondary market reinsurance for your group please send contact form below. In the meantime, please visit to view past blogs and Legislative Alerts at https://medicalsolutionscorp.com/feed. 

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    Emblem Leaving?

    Emblem Leaving?

    by | Feb 27, 2013 | Health Care Reform, HSA, Millennium Medical Solutions Corp, Small Business Group Health, Tax, Wellness

    Emblem GHI Leaving?

    Is Emblem Leaving?

    Is EmblemHealth (GHI formerly) leaving the small business market?  Yes and no.  The popular traditional EPO is slated to be chopped up for new business May 1 pending State approval. The remaining consumer driven health plans which have deductibles and coinsurance (a %) will stay in tact.  With that Broker compensation commissions will be significantly cut as well.  The family popular 2-tier rating is also phased out and new groups must submit everything clean within 30 days.

    Our quote in todays Crains Health Pulse Crains EmblemHealth pulls small business plans Feb 2013 | Crain’s New York Business reflects our deep concerns on market consolidations. “The unintended consequences of legislative changes has created a de facto single-payer system where Oxford is empowered to dictate to the New York market,” said Alex Miller, founder of Millennium Medical Solutions Corp. in Armonk, N.Y.  To be fair Emblem has been steadily streamlining plans with in network only plan offerings and lowest  HSA (Health Savings Account)  family deductible starting out at $11,600.  They are not the first insurer to do this as Empire Blue Cross issued a broader exit back in Nov 2011.

    A healthy health insurance marketplace depends on competition as we all agree.  From approximately 12 insurers 15 years ago we are today down to 2 active insurers Aetna and Oxford with Oxford claiming approx 2/3 of the small business marketplace. In NYS the MLR (Minimum Loss Ratios) are higher than any other state with additional state taxes.  See NYS Surcharge on Health Insurance.   The tight State Regulators allowing for razor thin margins while requiring insurers to maintain high reserves makes a burden many insurers are not excited.  This resembles more of a utility company environment except ConEd realizes a 10% operating profit and do not have to have insurance reserves to prove solvency.  Is there any surprise why there is no rush by outside insurers to compete here?

    While on topic of ConEd we all know how customer care  was in the aftermath of Hurricane Sandy.  When was the last time an independent veteran consultant (not an ESCO) worked with you on your utility bill, servicing, negotiating, educating, and maximizing savings?  Sure you can use a different supplier or ESCO but its still the local singular utility company that you are using.  In comparison,  same is happening in the health insurance field and the consequential exit of Health Insurance Brokers.  Sadly, this is precisely the time when their training is most in demand and the most in need will be least likely to afford them.

     

    Crains EmblemHealth pulls small business plans Feb 2013 | Crain's New York Business

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    Out of Control Out of Network Charges

    Out of Control Out of Network Charges

    by | Mar 12, 2012 | Health Care Reform, healthcare, Hospitals, PPACA, Small Business Group Health

     

    Out of Control Out of Network Charges

    Few healthcare changes have been more impacted than the out of  control out of network charges billed to patients.  The health care reform  bill known as PPACA has for the most part been insignificant in the Northeast, in particular, as many  state laws  have already addressed issues such as pre-existing conditions, contraception, coverage rescissions and maximum loss ratios (MLR).

    Instead, the market forces are reshaping the medical field  into significant insurance & provider consolidation, larger hospital groups and flattening provider reimbursements.  The  problem is pointed out in  Out of Network Medical Costs Affecting NY State Across  investigation report commissioned by Governor Cuomo recognizing the unexpected out-of-network claim problem.  Officials say that this is now  “an overwhelming amount of consumer complaints.”   Some examples cited in the report An Unwelcome Surprise – “a neurosurgeon charged $159,000 for an emergency procedure for which Medicare would have paid only $8,493.”  Another example: ” a consumer went to an in-network hospital for gallbladder surgery with a participating surgeon. The consumer was not informed that a non-participating anesthesiologist would be used, and was stuck with a $1,800 bill. Providers are not currently required to disclose before they provide services whether they are in-network.” The average out-of-network radiology bill was 33 times what Medicare pays, officials say.

    To make matters worse, Health Insurers have reduced their out of network recognized charges from private industry index UCR (usual customary and reasonable) to the Medicare Index known as RBRVS ( Resource Based Relative Value Scale ).  Insurers moved away from UCR after then-NYS D.A. Mario Cuomo in 2009 forced Unitedhelatcare Group (owners of Inginex) to settle $50 Million in a conflict of interest allegation.  D.A. Cuomo future hopes for UCR were to that it be overseen by a non-profit entity.  So much for best laid plans.

    Today, 90% of SMB members have in network only benefits but the few remaining consumers are paying for eroding out of network benefits with little transparencies and necessary protection from new out of network billing practices.  The NY Dept of Financial services  is calling for providers in non-emergency situations to disclose whether or not all services are in-network, what out-of-network charges will be and how much insurers will cover.

    Insurers such as Aetna are taking action – with lawsuits throughout the country such as Aetna sues 9 N.J. doctors for “unconscionable” fees.  Another Aetna lawsuit is discussed extensively in a law blog: In New Lawsuit, Health Insurers Allege Fraud and Kickbacks Against Out-of-Network Providers Who Forgive Patients’ Financial Responsibility.

    In an ominous statement” “Failure to recognize this historical out-of-network avalanche will result in shocking financial disasters, as experienced by so many hospitals in 2003″

    Empire Alternatives

    Empire Alternatives

    by | Nov 5, 2011

    Why wait until January as Empire will be dropping all plans on 4/1/2012 regardless of renewal date anyway. Plus, you can still take advantage of Q4/2011 pricing. Further, Empire is not allowing mid-year plan change exceptions. Thus, 12/1/2011 enrollments with other carriers is the way to go, and is still attainable.

     

    As for the other choices:

    -Aetna
    -Oxford
    -EmblemHealth (GHI)
    -HIP

    Alex Miller
    914-207-6161

    info@medicalsolutionscorp.com

    Empire  Leaves Small Groups Article

     

    CKICK ON RATES:     *******Empire Alternatives 2012********

     

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