CMS has released the risk adjustment summary report for the 2017 benefit year for the individual and small-group markets. The program, included as a permanent fixture of the Affordable Care Act (ACA), is designed to discourage adverse selection by health plans by providing transfer payments to plans with higher-than-expected health care costs. On a summer Saturday afternoon while the Washington, DC area was out enjoying unseasonably cool and sunny weather, however, CMS quietly announced that payments owed to plans for the 2017 benefit will not be paid. Even more quietly on a summer Monday morning, while the Washington, DC area was STILL busy enjoying unseasonably pleasant weather, CMS released a report that indicates that the risk adjustment program was working well and as intended.

For those who have regularly followed the Trump Administration’s announcements on anything related to the ACA, the tone of the summary report might be surprised. For one, there isn’t anything about how the Exchanges are failing and the ACA needs to be repealed – boilerplate that has become predictable. The report itself also notes that the program, and its underlying methodology (which is the subject of the aforementioned lawsuit), seems to be working, and working as intended. If anything, the report almost downplays signs that could point to the beginnings of the dreaded “death spiral” – that data indicate that the on-Exchange population could be getting marginally more sick and expensive than the off-Exchange population and that some sicker patients may be dropping coverage all together.

Highlights:

• The risk adjustment program functioned “smoothly” for the 2017 benefit year.
  • A total of 654 issuers participated in the risk adjustment program; of those, 628 received (or were slated to received) risk adjustment payments.
  • The nationwide value of payments received were approximately 8% of total premiums
• The risk adjustment program “worked as intended” by protecting plans against adverse selection and encouraging plans to offer products that “serve all types of consumers”
  • Risk adjustment payments decreased by about 1% between 2016 and 2017.
  • The amount of paid claims is strongly correlated with risk adjustment transfers (which is what a functioning risk adjustment program would show).
  • The data collected throughout the year led to improved predictability and more reliable estimates prior to plans’ rate setting for 2018 and financial forecasts.
  • While there was a decline in risk scores in 2017 (indicating that sicker patients may have dropped coverage all together), CMS believes that this may be the result of improved risk scoring methodology, not necessarily the health of the insured population.
  • However, there was correlation between risk scores and premium increases, as well as risk-scores and on/off-Exchange enrollment, which indicates that the on-Exchange population may be getting sicker/more expensive each year (aka the “death trap”).