What is the risk corridor? Adjustment? Reinsurance?
The risk-corridor program was established under the Affordable Care Act to help stabilize the individual and small-group markets by offsetting insurer losses during the first three years of the insurance exchanges. The program, which expired at the end of 2016, was designed to discourage insurers from raising premiums because of uncertainty over who would enroll in their plans.
The program works by collecting funds from profitable insurers, and paying out funds to health plans with losses that exceed a certain threshold. A similar program exists in Medicare Part D, which was created by Republican President George W. Bush.
But in 2014, Congress passed a provision in the 2015 federal budget requiring risk corridors to be revenue-neutral. That meant that the CMS could only pay out what it takes in from health plans. That change led to a massive shortfall in the risk-corridor program. In October 2015, the CMS said it would pay just 12.6% of the risk-corridor requests for 2014, with the rest of the payments being pulled from 2015 and 2016 collections. Modern Health Care 11.14.2017
California insurers have received nearly $1.2 billion through the Affordable Care Act’s reinsurance program, according to a Covered California analysis of a recent CMS report, Business Insurance reports (Geisel, Business Insurance, 7/6). The program requires insurers that offer exchange coverage to pay into a pool that can be used to reimburse them if they incur claims that exceed a certain threshold. In June, HHS said it will reimburse 100% of such costs between $45,000 and $250,000, up from 80% previously (California Healthline, 6/18). CA HealthLine 7.7.2015
Risk Corridor Litigation
The Supreme Court ruled 8-1 that the federal government has an obligation to pay insurers funds $12 Billion owed under the ACA temporary risk-corridor program. It reversed the judgments of the lower court and remanded the consolidated cases brought by four insurers for further proceedings. Modern Health Care *
Appeals court rules that Trump violated the law when the Feds stopped paying the subsidies, however insurers are not entitled to the full amount as they raised premiums to cover the loss. Maine Community Health Options v. United States Modern Health Care *
Trump freezes Risk Adjustment payments per July 7th 2018 announcement. The New Mexico ruling found fault with the formula used by the government to calculate the payments, saying it was “arbitrary and capricious.” But another district court in Massachusetts upheld the formula. * Modern Health Insurance * NPR * Larger Insurance Companies to be hurt the worst Modern Health *
Payments started again! Modern Health Care 7.24.2018 *
Blue Shield states in their 2017 Broker Cycle Guide that the loss of the reinsurance program alone adds 5% to the premiums!
Worse than that, the Federal Government owes 12.3B!
Court Rules $$$ not owed as ACA is supposed to be budget neutral. Modern Health Care 6.14.2018
That figure includes roughly $3.95 billion in payments to cover insurers’ losses in 2016 alone. The agency also owes insurers $5.8 billion in risk-corridor payments for 2015. That’s on top of the $2.5 billion shortfall for 2014 losses.
“Risk corridor program” is an odd term that may be unfamiliar to those outside of the federal healthcare field. Essentially, the “risk corridor” concept is a way to share the risks between insurers and the Government when embarking upon a new health insurance endeavor. By sharing the risks, the Government intended to encourage more insurers to participate in the new ACA endeavor. The Government’s promise to reimburse certain revenue losses to insurers would allow the insurers to maintain health insurance premiums for consumers at a lower and more reasonable rate. The insurance companies voluntarily entered the program based upon the Government’s promised terms. actual 48 page ruling