Risk Adjustment Implementation Issues

HHS is releasing a draft white paper discussing implementation issues and questions related to the State-based risk adjustment program for the individual and small group markets established by the Affordable Care Act.

This white paper serves both to begin the consultation process around the development of the federally-certified risk adjustment methodology developed by HHS and to provide context for individuals to submit comments in response to the Standards Related to Reinsurance, Risk Corridors and Risk Adjustment Notice of Proposed Rulemaking (45 CFR Part 153) released in July 2011 (76 Fed. Reg. 41930). Comments are due by September 28, 2011.

Comments sent in direct response to the white paper will inform the HHS-developed federally-certified risk adjustment methodology, which will be released as part of a Federal Payment Notice that will appear in the Federal Register, and will include a draft notice and a comment period before the notice (and methodology) are finalized. Responses to the white paper may be submitted on an ongoing basis in advance of the draft notice, slated for Fall 2012.

Why is this paper being announced now?

This paper is being released to coincide with the Standards Related to Reinsurance, Risk Corridors and Risk Adjustment NPRM comment window, which closes on September 28, 2011, because it provides context for individuals wishing to submit comments in response to the NPRM.  Importantly, this white paper provides a more detailed technical discussion of several elements of the NPRM. In addition, HHS is beginning the development of a Federal risk adjustment methodology, and comments received in response to this white paper will assist HHS in this effort.

How does this paper relate to the recently released Standards Related to Reinsurance, Risk Corridors and Risk Adjustment NPRM?

This white paper provides a more technical description and analysis of issues related to the development of a federally-certified risk adjustment methodology than was contemplated in the NPRM. This paper is a draft meant for discussion purposes only and does not represent final policy.

What is included in this white paper?

This white paper provides a more detailed technical discussion of several elements of the NPRM. In particular, this paper discusses methodological choices in developing a Federal risk adjustment model, describes potential approaches to calculate payments and charges, and addresses permissible rating variation. The paper places emphasis on payments and charges and permissible rating variation because these topics are particular to the Affordable Care Act and provides further detail on preliminary approaches to examine the implications for premiums of various payment and charges alternatives. .

Is there opportunity for comment or feedback on this paper, and if so, how?

Yes. Comments in response to this white paper may be submitted to the email address RiskAdjustmentIssues-2011@cms.hhs.gov. There is no deadline to submit comments to this white paper; we see this as a part of an ongoing consultation process.

However, these comments will not become part of the administrative record that will be the basis of the final risk adjustment proposed rule. Comments in response to the white paper will be used by HHS in developing the first annual Federal payment notice that will appear in the Federal Register and will include a draft notice and a comment period before the notice (and methodology) is finalized.  While this white paper should serve to inform comments to the NPRM, comments in response to questions raised in the NPRM should be submitted at the regulations.gov website, where they will become part of the administrative record for the NPRM.

Did any public input go into the drafting?

This paper was drafted as part of an ongoing consultation process with States, issuers, risk adjustment experts and other stakeholders. In keeping with the commitment to transparency, this white paper is intended as the first in a series of consultations that will include meetings and other opportunities for feedback.  HHS is seeking comments on this white paper to inform the development of a federally-certified risk adjustment methodology. The methodology will be released as part of a Federal Payment Notice that will appear in the Federal Register. Before finalizing the Payment Notice and the federally-certified methodology, HHS will issue a draft notice and take public comment.

What are the next steps?

Comments in response to this white paper will be considered as HHS begins the process of developing a federally-certified risk adjustment model. Comments will inform the HHS-developed federally-certified risk adjustment methodology, which will be released as part of a Federal Payment Notice that will appear in the Federal Register and will include a draft notice and a comment period before the notice (and methodology) is finalized.  Comments in response to the NPRM will be addressed in the rule making process.

Risk Adjustment

What is risk adjustment?  To whom does it apply?
To minimize the negative effects of adverse selection and foster a stable marketplace from year one, the Affordable Care Act establishes transitional reinsurance and temporary risk corridor programs, and a permanent risk adjustment program to provide payments to health insurance issuers that cover higher-risk populations and to more evenly spread the financial risk borne by issuers.

The risk adjustment program is designed to protect issuers that attract a high risk population, such as those with chronic conditions.  Under this program, money is transferred from issuers with lower risk enrollees to issuers with higher risk enrollees.  This is a State-based program that applies to non-grandfathered plans in the individual and small group markets, inside and outside of Exchanges.  

The risk adjustment program is intended to reduce or eliminate premium differences between plans based solely on expectations of favorable or unfavorable risk selection, or choices by higher risk enrollees in the individual and small group markets.  The risk adjustment program also serves to level the playing field inside and outside of the Exchange, reducing the potential for excessive premium growth or instability in markets inside or outside of the Exchange.

What is included in the Standards Related to Reinsurance, Risk Corridors and Risk Adjustment NPRM?

The NPRM proposes standards related to the risk adjustment program. The NPRM proposes that a uniform set of data for risk adjustment be considered. This reduces burden on health insurers that offer qualified health plans in different States by creating uniform reporting standards.   It proposes that risk adjustment calculations occur at the State, rather than plan or Federal level, given States’ role in the system.  And while a Federal risk adjustment methodology would be developed, States electing to run their own risk adjustment program could use an approved alternative methodology.  This white paper is intended to provide context for comments in response to the NPRM.