ACA Introduced a program with 3 R's (Risk Adjustment, Re Insurance and Risk Corridor) which is intended to protect against the negative effects of adverse selection and risk selection, and also work to stabilize premiums, particularly during the initial years of ACA implementation.
Now the reinsurance and risk corridor programs will be phased out in the 2017 plan year, the risk adjustment program is a permanent and critical piece of the commercial health insurance landscape.
Risk Adjustment:
Risk adjustment in the commercial marketplace is designed to ensure that carriers attracting high-risk individuals will be able to compete on a level basis with carriers that attract lower risk individuals. This allows for “the focus of plan competition to shift from risk selection to quality, efficiency, and value”.
Other details related to RAPS can be found in earlier post Risk Score and RAPS to EDPS Transition.
There are two elements to the risk adjustment program:
1. Risk scores are calculated for each enrolled individual to determine the relative risk of each carrier in a risk pool.
2. A financial transfer is determined based on a comparison of the average risk level across each risk pool by state. Within each state, there are three distinct risk pools: individual, small group and catastrophic.
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