Monday, November 18, 2013

Risk Mitigation for Insurers on the Exchange

I have posted once before on the three risk mitigation mechanisms built into the ACA Health Exchanges:  Reinsurance (to compensate insurers who have high cost individuals); Risk Corridors (to compensate or penalize insurers who perform financially worse or better than they expected); and Risk Adjustment (to minimize adverse selection by paying or charging insurers who get less or more healthy consumers than the average.   See this presentation for a description.

I expect that there is a fair amount of consternation over these risk mitigation schemes right now, from insurers and from the folks in the US government.  We won't hear as much though because these things are not consumer-based.  But they could be even more important.

First, the risk mitigation schemes are going to take a fair amount of manpower and computing power to implement.  Is the system up for this?  Given what we have seen to date, I would be surprised it it were.  And if the risk mitigation systems aren't already ready to roll, I doubt there is sufficient spare capacity in HHS and CMS to help at this point -- everyone is working on the consumer-facing exchanges.   If the enrollment numbers continue on the low side, with mostly high cost individuals enrolling, there are going to be a ton of claims from insurers for risk adjustment payments -- from all three risk mitigation programs.  If I were an insurer, I wouldn't be expecting my accounts payable from CMS to be paid anytime soon.

Second, as Megan McArdle points out today, the government is already making noises about increasing the risk mitigation payments.  She doubts the law permits that to happen, but let's not think that mere rules will stand in the way!  The government is increasingly having to rely on those terrible insurers (remember all the rhetoric to get Obamacare passed) to make the whole damn thing work in any kind of way at all, so they might try real hard to create the necessary incentives.  I would not be surprised at all to hear of changes in the risk mitigation to compensate insurers for losses incurred from low and adverse enrollments.

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