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Risk Adjustment, Reinsurance Improved Financial Outcomes For Individual Market Insurers With The Highest Claims
Paul D Jacobs1, Michael L Cohen2, Patricia Keenan3
1Paul D. Jacobs (paul.jacobs@ahrq.hhs.gov) is a service fellow in the Center for Financing, Access, and Cost Trends at the Agency for Healthcare Research and Quality, in Rockville, Maryland.
Health Affairs (Project Hope)
|March 31, 2017
Summary
The Affordable Care Act
Area of Science:
- Health Economics
- Health Policy
- Insurance Markets
Background:
- The Affordable Care Act (ACA) mandated significant reforms to the individual health insurance market.
- Insurers are prohibited from varying coverage offers based on applicant health status.
- This necessitated the creation of risk-sharing mechanisms to manage cost variations.
Purpose of the Study:
- To evaluate the financial impact of the ACA's risk adjustment and reinsurance programs.
- To assess the effectiveness of these programs in stabilizing insurer finances in the individual market.
Main Methods:
- Comparative analysis of insurer revenues versus claims costs.
- Inclusion of risk adjustment and reinsurance payments in financial assessments.
- Data analysis for the initial two years of ACA implementation (2014-2015).
Main Results:
- Before risk-sharing payments, high-cost insurers faced monthly deficits of $90-$397 per enrollee.
- After payments, these deficits were eliminated, with revenues exceeding costs by $0-$49 per enrollee.
- The risk adjustment and reinsurance programs demonstrated effective targeting in their initial years.
Conclusions:
- The ACA's risk-sharing programs successfully mitigated financial losses for insurers.
- These programs effectively addressed insurer risk selection challenges in the individual market.
- Findings offer insights into managing risk in health insurance markets.