In an earlier post, we provided results showing how, in our opinion, the CMS-operated risk-adjustment system contributed positively toward the intended objective of allowing issuers to compete in the non-group market on bases other than risk selection. We drew that conclusion from our analysis of risk-adjustment results for 2014. The new draft Notice of Benefit and Payment Parameters (NBPP) provides states with the option of altering the risk adjustment payment transfer formula by reducing payments and receipts in the small group market by up to 50 percent, beginning in 2019.
In this post, we update our earlier post using data from 2015 (the most recent available), we include an analysis of risk adjustment in the small group market, and we use the 2015 data to show the effect on results if the states had opted to alter the payment transfer formula by reducing transfers by 50 percent in 2015 as allowed in the draft NBPP.
We reach the following conclusions:
- As was the case in 2014, in 2015, the risk adjustment system was helpful in allowing plans to compete based on features other than risk selection.
- If the transfer formula for the small group market had been adjusted in 2015 as allowed for in the draft NBPP by reducing payments and receipts by half, the system would have performed less well in compensating health plans with costs in excess of what we have calculated as the statewide average.
Risk-Adjustment Receipts Versus Distance from State-Wide Average Claims in the Non-Group Market
The risk-adjustment model operates at the state-wide level. In Chart 1, we show how an issuer’s risk-adjustment receipts in the non-group market varied with claims relative to the state-wide average claims in 2015. Those issuers with claims that were higher than the state-wide average were more likely to be recipients of risk-adjustment payments (R2 = 0.62). In essence, as was the case in 2014, in 2015 the risk-adjustment system tended to bring down the cost of claims for plans with high claims per member per month (PMPM) and bring up the cost of claims of plans with relatively low claims PMPM.