The 2023 Carrier risk adjustments were released by CMS on July 24. You can find the source material and all of the carriers state by state data HERE. The purpose of this post is to detail who the net recipients and payers of Risk Adjustment are and remind you, as an agent, what Risk Adjustment is and why it matters!
Put simpler: Who is paying in, and who is paying out?
Net Recipients – These are carriers that will receive the payments – the inflow of dollars:
- FL Blue – $1.5 billion
- HCSC – $1.1 billion
- Ambetter – $468 million
- Community Health Choice – $250 million
Net Payers – These are the carriers that will make the payments – the outflow of dollars:
- Aetna – $1.3 billion
- Oscar – $1 billion
- UHC – $760 million
- Anthem – $289 million
What is Risk Adjustment?
Risk adjustment is a mechanism used in the Affordable Care Act (ACA) to spread financial risk among insurance carriers. This system was created to prevent insurers from being penalized for enrolling sicker individuals who require more costly care, thereby encouraging carriers to compete based on the quality of care rather than their ability to select healthier enrollees.
The Spirit of Risk Adjustment
The primary goal of risk adjustment is to ensure a level playing field in the insurance market. By compensating plans that attract higher-risk individuals, it discourages insurers from cherry-picking healthier individuals and helps maintain a competitive marketplace where premiums reflect the efficiency and quality of care provided, rather than the health status of the enrolled population. This zero-sum game reallocates funds among carriers within each state based on the risk profile of their enrollees, ensuring that plans with higher-than-average health risks receive payments funded by those with lower-than-average risks.
How Risk Adjustment Impacts Premiums
Risk Adjustment and Premium Stabilization
Risk adjustment plays a pivotal role in stabilizing premiums in the health insurance marketplace under the ACA. By redistributing funds from plans with healthier enrollees to those with sicker, more costly enrollees, the program aims to mitigate the financial risk associated with covering high-risk populations. This mechanism helps prevent dramatic premium increases for plans that attract sicker individuals, thereby promoting market stability and affordability.
How can agents help?
Agents play a pivotal role in the ACA. They can also play a pivotal role in helping carriers increase the RA scores. Get members to the doctors, get members engaged. Make sure members are interacting with their health insurance company. Get them to download the app! The more engaged the member, the more likely the member is to stay with the plan, thus reducing your annual churn. The higher the risk payment to the carrier, the more likely the carrier is to maintain rates, thus again, reducing your churn.
One Big Agent Lesson
You should be appointed to all of the carriers that are in your area. One carrier may not matter this year, but they may matter next and making sure you are positioned is paramount! Risk adjustment changes annually; you need to make sure you are always on the right side of these changes while building relationships.
Direct Impact on Premium Calculation
- Incentivizing Comprehensive Coverage: Risk adjustment encourages insurers to offer comprehensive coverage without fear of financial loss due to high-risk enrollees. Knowing they will be compensated for higher-than-average claims costs, insurers can set premiums based on the average expected health costs of their entire enrollee pool, rather than inflating premiums to cover potential high-cost individuals.
- Reducing Adverse Selection: Without risk adjustment, insurers might engage in practices aimed at avoiding high-risk individuals, leading to adverse selection where sicker individuals are concentrated in fewer plans, driving up their premiums. Risk adjustment counters this by redistributing funds, ensuring that no single insurer is disproportionately burdened by high-risk enrollees, thus keeping premiums more consistent across the market.
Long-term Effects on Premium Trends
- Promoting Competition Based on Quality: By leveling the financial playing field, risk adjustment fosters competition among insurers based on the quality of care and efficiency rather than the ability to select healthier enrollees. Over time, this can lead to improvements in care management and cost control, potentially lowering premium growth rates.
- Encouraging Preventive Care and Wellness Programs: Insurers are incentivized to invest in preventive care and wellness programs to manage the health of their populations better. Healthier enrollees lead to lower average claims costs, which can help moderate premium increases over time.
