Federal regulators are fleshing out the rules for a huge new program that gives health insurers an incentive to make enrollees look like zombies.
The program, the Patient Protection and Affordable Care Affordable Care Act (PPACA) risk adjustment program, is important to insurance producers who help clients with individual and small-group health coverage because it turns the traditional underwriting picture upside down.
In the past, issuers of individual coverage wanted you to send them healthy applicants. In most states, when health insurers were willing to cover your sicker clients, they charged those clients higher rates.
Now, health insurers are supposed to sell and price individual coverage without considering personal health status factors other than age and, in some states, tobacco use. The PPACA risk adjustment program is supposed to protect insurers that end up with more than their fair share of sick patients by shifting cash from issuers of non-grandfathered individual and small-group coverage with low-risk enrollees to issuers with high-risk enrollees.
The risk adjustment program is on track to shift $4.6 billion between health insurers for 2014 coverage.
In theory, if the system works, it could make insuring a patient with diabetes more attractive than insuring a similar patient without diabetes. Covering a patient who has diabetes and has had terrible medical care may look even better, because an insurer could collect extra risk adjustment cash for that patient while using good care management to reduce the patient's medical bills.
To make the program work, managers have to persuade the insurers with low-risk enrollees to pay their risk adjustment program bills.
One possible threat is consumer privacy concerns. Consumers may not be thrilled to learn that insurers are assigning them risk scores.
Another possible threat is questions about risk score credibility. Consultants have already been giving health insurers tips on how to interpret patient records to make patients look as sick as possible.
See also: PPACA: Rise of the health detectives?
The Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health and Human Services (HHS), seems to have used the honor system for 2014 risk scores.
CMS is now taking active steps to fight risk score "zombification" by setting up the HHS-Operated Risk Adjustment Data Validation (HHS-RADV) program. CMS recently began offering health insurers HHS-RADV training. The agency wants insurers to send it HHS-RADV data reports by April 30, 2016.
For three more things agents, brokers and insurance consultants might want to know about the HHS-RADV program, drawn from a recent CMS HHS-RADV slidedeck, read on.
1. Medicare and Medicaid plans also have a risk adjustment program, but the PPACA program for commercial insurers could lead to more insurer-on-insurer conflict.
Medicare and Medicaid program managers use federal money to make risk adjustment payments. No insurer has to pay out extra cash due to its having an unusually low percentage of sick enrollees.
In the new PPACA HHS-RADV system, all of the payments to insurers have to come from other insurers. Insurers have an incentive to "upcode" their enrollees, but other insurers have an incentive to detect the upcoding, or to leave the individual and small-group market if they feel the risks of having to pay into the risk adjustment program outweigh the potential benefits of being in the individual and small-group markets.
