by RISE
3. August 2010 01:41
By 2014, many changes in how our health care system operates will have been enacted. Some of them designed to slow the growth of health care spending, others to provide access to health care for the residents of the U.S. who are currently uninsured. The individual mandate to purchase health insurance coverage, along with the creation of state and regional American Health Benefit Exchanges, or "Health Insurance Exchanges" will mean more people will be shopping for health insurance coverage on the individual market, comparing plans based on price, benefits, cost-sharing requirements, quality, reputation and the provider network available to beneficiaries. The Department of Health and Human Services is currently soliciting public comment on the development of the Exchanges.
Health insurers will be able to price plan premiums based on age, smoking behavior, location, and family size. However, because health insurers will no longer be able to base premiums on disease conditions, health status, or other risk factors in the individual health insurance market, there is a risk for adverse selection among plans doing business in and out of the Health Insurance Exchange. Subsidies available for plans doing business in the Exchange could result in higher risk users of health care joining the Exchange, while healthier individuals could receive coverage by purchasing non-Exchange plans.
In order to deal with this issue, the Patient Protection and Affordable Care Act (PPACA) allows for the use of risk adjustment and reinsurance payments in the Health Insurance Exchanges that will be created by states or groups of states. Although risk adjustment is currently used in the Medicare Advantage program (using the HCC model) and in Medicaid managed care plans to compensate health plans that enroll sicker, higher risk people, the risk adjustment methods used have faced criticism.
One concern when states begin using risk adjustment in the individual or small business markets is the level of data available and reported by health plans in order to calculate the risk adjusters, while another is the ability of the risk adjuster to subsidize premiums for plans that take on high-risk populations, while also allowing the lowest risk members of an enrolled group to pay affordable premiums. Although the Department of Health and Human Services will be able to provide some guidance related to competing risk adjustment methods and data needs to states, state policymakers need to make these decisions now and understand the consequences of those decisions.
States are currently pre-occupied with future requirements to expand Medicaid, creating the individual Health Insurance Exchanges and Small Business (SHOP) Exchanges, and dealing with budget shortfalls due to prolonged unemployment and economic struggles. However, 2014 is quickly approaching, and each state will need to decide how to collect data from health plans, what variables are needed, and how to design their risk adjustment methods. Some may decide to use a fairly simple method, which could put their residents at risk of inequitable premium rates in the individual market. On the other hand, some states could develop very complex methods that would require several years to implement. Regardless of the state strategy, serious thought needs to be put into the use of risk adjustment in the individual market. Simply using the Medicare or Medicaid managed care models may not adequately deal with the diversity of enrollees that will be entering the health insurance market in 2014. In addition, state policymakers and planners will need to develop and implement a risk adjustment mechanism that will be sustainable in their state, given the inherent limitations of data collection, population characteristics, and state financing.
Each state needs to think carefully about the approach they will use and work toward that goal efficiently and aggressively, in order to safeguard the health insurance markets under the Individual Mandate. Dr. Will Dow, from the Petris Center at UC Berkeley, recently spoke at a California Program on Access to Care Legislative Briefing on the importance of risk adjustment. While it is directly applicable to California, his presentation carries important lessons for any state that is actively designing their own Health Insurance Exchange and is facing the daunting task of determining a risk adjustment approach that will keep premiums affordable for all members of the market.
Dylan H. Roby, PhD
Assistant Professor of Health Services, UCLA School of Public Health, Research Scientist, UCLA Center for Health Policy Research
