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NJ to Start State-based Exchange

NJ to Start State-based Exchange

Governor Murphy announced that the state will seek to run its own ACA marketplace in 2021 to allow greater control over its health insurance market. New Jersey took this step to “protect New Jersey from actions taken by the Trump Administration to roll back the hard-fought protections afforded by the ACA,” according to Governor Murphy.  

Running a state-based exchange will give the state more control over different aspects of the market. These aspects include having control over the open enrollment period, having more access to data, the ability to conduct targeted outreach, and allowing user fees to fund exchange operations, consumer assistance, outreach and advertising.

New Jersey has already passed a few laws that have decreased average rates by 9.3% in 2019. The laws include an individual mandate, a reinsurance program, and legislation that protects consumers from surprise balance billing. The individual mandate’s penalty is related to the average cost of a bronze plan in New Jersey, and will be assessed on state tax returns. The revenue collected from this penalty will go into state funding for the reinsurance program. The reinsurance program was approved by CMS in August 2018. The reinsurance program reimburses insurers for 60 percent of the cost of claims over $40,000, up until claims reach $215,000. 

New Jersey is also proposing codifying major ACA provisions into state law. The protections the Murphy Administration is looking into codifying include: 

NJ’s announcement that they will run a state-based exchange comes at a time when President Trump’s Administration has declared that it backs a full invalidation of the ACA. This position furthers the earlier decision by the administration when the Justice Department argued that there were only grounds to strike down the ACA’s consumer protections. 

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NYS 2018 Final Rates Approved

NYS 2018 Final Rates Approved

NYS 2018 Final Rates Approved   2018 NYS healthcare_costs_scrabble_1333568743

NYS has approved  2018 Final Rates last week. Small group rates will increase 9.3% while the individual rate average increase will be 13.9%.

As per NY State Law carriers are required to send out early notices of rate request filings to groups and subscribers see original –NYS 2018 Rate Requests.  With only 3 months of mature claims, experience for 2017  health insurers’ requests are historically above average.  Ultimately the State reduces this request substantially. This year, however, NYS acknowledged that medical costs increased, citing a 7-percent average increase on the individual market and an 8.5-percent increase on the small group market. The administration also acknowledged drug prices have impacted insurers, pointing specifically to blockbuster drugs for Hepatitis C.


The national rate trend, however, has been much higher than in past years due to higher health care costs  Like other states throughout the nation, the 2017 rate of increase for individuals in New York is higher than in past years partly due to the termination of the federal reinsurance program.  The loss of the program’s a.k.a. federal risk reinsurance corridor funds account for 5.5 percent of the rate increase.

How are neighboring States doing? In NJ, not that bad.  According to a review of filings made public last week the expected rate increase will likely be half.  Example: Horizon Blue Cross Blue Shield requested a 4.8% increase on their OMINA Plans.  For CT market, on the other hand, things are much worse at least for the individual marketplace with average 25% rate increases.

While the individual mandate is still the law, Washington has made it clear that they aren’t going to enforce the mandate. That means fewer people will buy health insurance raising the prices for those who do.

 A bipartisan group of congressional representatives has discussed an agreement to extend and guarantee the payments, but it’s unclear whether they could do so by the new filing deadline of Sept. 5. A lawsuit filed by Congress against the Obama administration to challenge the payments is still pending. In addition, Trump has repeatedly threatened to withhold payments to insurers that reduce cost-sharing – deductibles, copays and coinsurance – paid by low-income customers. More than half of New Jersey’s marketplace customers receive that assistance, and without it, most would be unable to afford coverage.

Finally, a tax on health insurance premiums is due to be reinstated in 2018 after a one-year “tax holiday” approved by Congress for 2017. That contributed 2.3 percent to the rate hikes that insurers requested last year.


The new premium hikes ranged from as little as .8% percent for Hudson Valley’s Crystal Run Health Insurance Company to a whopping 20.4% percent increase for  Albany region’s CDHP.  Importantly, small group market is still more advantageous than individual markets unless one gets a sizable low-income tax credit.

Overall, about 350,000 individual plan consumers will be affected by the price hike, while more than a million users will be hit by higher small group fees. Last year, Blue Cross Blue Shield released a study showing Obamacare user costs were 22 percent higher than people with employer-sponsored health plans, while UnitedHealth plans to exit most Exchanges see –  Breaking: Oxford Exits Metro Indiv & Oxford Liberty HMO 2017.

The correct approach for a small business in keeping with simplicity is a Private Exchange and with our large buying group PEO partnerships. This is a true defined contribution empowering employees with a choice of leading insurers offering paperless technologies integrating HRIS/Benefits/Payroll.  Both employee and employers still gain tax advantage benefits under the business.  Also, the benefits, rates and network size are superior under a group plan as the risk are lower for small group plans than individual markets.

NYS 2018Health Insurance Rates Approved

* All amounts are rounded to the nearest 1/10.

**Indicates that the company makes products available on the “New York State of Health” marketplace.

Learn how a Private Exchange and our PEO Partnership can help your group please contact us at [email protected] or (855)667-4621.

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Here’s How Trump Will Change Obamacare

Here’s How Trump Will Change Obamacare

Leading article on the direction of TRUMPCARE we’ve read thus far. Former president Barack Obama’s budget director, Peter Orszak thinks Obamacare will be replaced through the waiver process.

Here’s How Trump Will Change Obamacare

By Peter R. Orszag FEB 14, 2017 6:00 AM EST

Promises made by Donald Trump and Republicans in Congress to repeal and replace the Affordable Care Act are proving to be more complicated than they sounded on the campaign trail. With reality now setting in, what’s most likely to happen?

I expect to see Republicans stage a dramatic early vote to repeal, with legislation that includes only very modest steps toward replacement — and leave most of the work for later. Next, the new administration will aggressively issue waivers allowing states to experiment with different approaches, including changes to Medicaid and private insurance rules. At some point, then, the administration will declare that these state experiments have been so successful, Obamacare no longer exists.

In other words, the repeal vote will be just for show; the waivers will do most of the heavy lifting.

I predict something like this will happen because of two core challenges that stand in the way of Republicans’ replacing the ACA through legislation: the need for so-called community rating and the need to have 60 votes in the Senate to pass a comprehensive new health-care law.

First, community rating. It is one of the basic building blocks needed to create a workable private insurance market — whether Democrats or Republicans are doing the building. If your insurance covers a pre-existing condition but at a cost of, say, $100,000, that doesn’t really help. Community rating requires that your premium be the same as that of other people in your area, no matter how unhealthy you are.

With community rating in place, the next step is to recognize how easy it is to game the system: People can just wait until they get sick, then buy insurance at the community rate. To discourage that practice, the system needs to give people some strong incentive to purchase insurance before they get sick. The Affordable Care Act used an individual mandate; most Republican plans instead propose a requirement for continuous coverage. That is, people enjoy access to community-rated premiums in the future only if they have kept themselves insured over some period of time in the past.

Given the costs involved, subsidies are also needed to ensure that low- and moderate-income households can afford the coverage. This overall structure means that younger, healthier people implicitly subsidize older, sicker people.

Such are the inescapable constraints imposed by community rating. Community rating could be discarded, as Mark Pauly of the University of Pennsylvania has argued. Pauly instead proposes that insurance companies be allowed to vary people’s premiums according to their health status, and that general revenue be used to pay sicker people’s higher premiums. This would require substantial new taxes, however, which is presumably a nonstarter in a Republican plan. In any case, it would only make the transfers to older, sicker people more explicit.

The second challenge is more nakedly political: Without a substantial change in Senate procedure, a bill to fully replace the Affordable Care Act, including changes to insurance rules, will require 60 votes. Republicans have only 52, so at least eight Democratic senators would need to be persuaded to go along. This is a much tougher assignment, especially since the administration will already be calling in legislative favors on ongoing confirmations, the debt limit, tax reform and other issues.

The Republicans’ desire to hold an early partisan vote repealing the ACA (through the reconciliation process that requires only a simple majority in the Senate) seems too strong to resist. The repeal will probably be set to become effective in the future, perhaps 2019 or 2020.

This vote will probably be closer than many people think, given the concerns that some moderate Republican senators have expressed about repealing the ACA with no replacement ready. Some far-right Republicans may also balk at anything less than a full immediate repeal. For the White House, however, the closeness of the vote will be a feature rather than a bug, because it will create the impression that the vote is significant.

The repeal legislation will probably include some modest steps toward replacing the ACA, but these will be mostly symbolic measures such as allowing insurance companies to sell across state lines (which by itself would do little to lower people’s premiums). The hard work of a creating comprehensive replacement is then likely to get bogged down in legislative muck.

But the administration can use its expansive waiver authority to allow states to experiment with both Medicaid and the individual insurance markets. As these 50 flowers bloom, President Trump could at some point declare victory and assert that the ACA has been sufficiently reformed.

This approach, whatever its potential substantive shortcomings, provides a major political benefit: The administration would not necessarily own the many problems that inevitably would remain. In response to any particular complaint in a specific state, the administration could simply shrug its shoulders and direct the inquiry to the relevant governor.

This outlook assumes that the Republican leadership in Congress isn’t willing, or lacks the votes, to change the Senate’s traditional rules, and that a comprehensive replacement for the ACA will indeed require 60 votes. If that changes, all bets are off.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Peter R. Orszag  at [email protected]

To contact the editor responsible for this story:
Mary Duenwald  at [email protected]

2017 Individual Open Enrollment

2017 Individual Open Enrollment

2017 Individual Open Enrollment

Everything you need to know ahead of tomorrow’s 2017 Individual Open Enrollment.  This Open Enrollment  marks the 4th anniversary of Obamacare a.ka. The Affordable Care Act.  As a helpful resource, the new NY and NJ rates with important deadlines are listed below.   33 States such as NJ use the website or at  States such as NY and CT use their own Marketplace –  NYS of Health and AccessHealth CT.  Importantly,  individuals not expecting a subsidy may also apply Off-Exchange which in many case has  more options and Insurers.

2017 NY Individual Health Plans

2017 Individual Open EnrollmentThese rates are for New York City unless otherwise indicated, and for a single person. For a family premium, multiply by 2.85, Husband/Wife
multiply by 2.0 and Parent/Children multiply by 1.70.  The non single deductibles are  out of pocket maximums are doubled. These are for standard plans, which two-thirds of customers enrolled in during 2016.

While deductibles for platinum, gold and silver plans have stayed the same, many bronze plan deductibles have increased 33 percent. That means consumers who purchase a bronze plan — presumably for its lower monthly premium — are paying more out of pocket for their medical costs before their insurance company kicks in a dime. A family of four that purchased a bronze plan will have an $8,000 deductible in 2017, up from $6,000 in 2015. For someone young and relatively healthy, that might be OK, but that person is vulnerable to a very large bill if he or she needs expensive medical care. It’s the platinum plans where New York State really shows itself to be a national outlier. Roughly 18 percent of New Yorkers chose a platinum plan in 2016, compared to 2 percent across the nation, according to the Kaiser Family Foundation.

Here are the 2017 rates:


2017 NJ Individual Health Plans

NJ Dept of Banking and Insurance posted the 2017 NJ  individual health plans Monday. Only two carriers will offer plans on the state’s Obamacare marketplace next year: Horizon Blue Cross Blue Shield of New Jersey and AmeriHealth.

Additional insurers are participating  off-exchange or outside the Marketplace.   Examples:  Aetna, CIGNA and Oxford.  There are additional 20 plan options available off exchange. A notable new entrant, Health Republic of NJ, will no longer be available for 2017.  See – Health Republic NJ Shutting Down.

Here are the 2017 rates:



Health Republic NJ Shutting Down

Health Republic NJ Shutting Down

Health Republic NJ Shutting Down

HRNJ Co-Op closing Down

Health Republic NJ Shutting Down


In yesterday’s surprise announcement, NJ regulators will be shutting down  Health republic NJ for 2017 “because of its hazardous financial condition”.  This marks the demise of the second Metro area healthcare co-op with the same name-sake Health Republic but different managed healthcare co-op, see Health Republic NY Shutting Down Nov 30.

Since Obamacare’s rollout in the fall of 2013, 16 co-ops that launched with money from the federal government have collapsed. Now, just six co-ops—Wisconsin’s Common Ground Healthcare Cooperative; Maryland’s Evergreen Health Cooperative; Maine Community Health Options; Massachusetts’ Minuteman Health; Montana Health Cooperative; and New Mexico Health Connections—remain.

In a bizarre twist of fate or unintended Affordable Care Act design flaw small affordable startups not only have to gain new client footholds but also support large Obamacare Failed Co-Opsestablished companies “with sicker patients”. Start-ups, by contrast, with much lower rate of diagnosed sick patients essentially pay into this tax. This tax is part of the risk adjustment program intended to stabilize Insurers who took on sicker patients and spread this risk.  While some correctly blame too low pricing and some miscalculated business decision-making the inherent extra tax doomed the majority of the original 16 co-ops.
Health Republic in fact grew steadily and made money the first 9 months of 2015.  However, HRNJ lost 17.6 million end of 2015 and is choking off at this $46.3 million payment to the government through the risk adjustment program.  This is considered one of the 3 R’s of the reinsurance program – risk corridor, reinsurance and risk adjustment that were intended to level the playing field. The first “R”—“reinsurance”—subsidizes insurers that attract individual customers who rack up particularly high medical bills. The second—“risk adjustment”—requires insurers with low-cost patients to make payments to plans that share the benefits with those who insured higher-cost ones. And the third, called “risk corridors,” is a program to subsidize health plans whose total medical expenses for all their Obamacare customers overshoot a target amount.
 The co-ops received less money than they initially anticipated last year under Obamacare’s risk corridor program, which resulted in the collapse of at least five co-ops and a $5 billion class action lawsuit filed by 6 state’s co-ops – ” Oregon-based insurer Moda Health Plan Inc., Blue Cross Blue Shield of North Carolina, Pittsburgh-based Highmark Inc., and the failed CoOportunity Health, which was based in West Des Moines, Iowa, and Health Republic Insurance Co. of Oregon, which was based in Lake Oswego.”

From Politico’s “Obamacare’s sinking safety net”:

 “The risk corridor program, however, has been an unmitigated debacle. In December 2014, the Republican Congress voted to prohibit the Obama administration from spending any money on the program, decrying it as a bailout for the insurance companies. Sen. Marco Rubio, then thought to be a leading GOP presidential contender for 2016, was particularly vocal in pillorying the program.

Unlike all those symbolic “repeal Obamacare” votes, Congress actually succeeded in blocking those risk corridor payments, and it hit Obamacare hard. Insurers filed claims seeking $2.9 billion, but under the limits imposed by the GOP there was less than $400 million available to make good on those payments. The end result: insurers initially received only 12.6 cents for each dollar they had counted on. Many of the new Obamacare co-op plans that went out of business blamed their collapse in part on the fact that they’d been counting on the full payments to keep them solvent.”

Regrettably, in a Presidential year no one wants to touch this burning hot potato. Perhaps NJ’s handling of this pressure cooker and taking 2017 off may be the best course of action after all.


9/16/16 Addendum:

As of Monday, September 19, 2016, the portal for Health Republic Insurance will be shut down, as they are no longer accepting new business for the year.

The New Jersey State Department of Banking and Insurance has also provided a list of FAQs related to the shutdown and how it affects individuals, small employers, brokers and providers. For more information, click here.

As always, our team is here to assist you and to help you grow your business.

Risk Adjustment, Reinsurance, and Risk Corridors

Risk Adjustment, Reinsurance, and Risk Corridors

Risk Adjustment, Reinsurance, and Risk Corridors ACA's 3 R

Leading  explanation of ACA’s 3 R’s Risk Adjustment, Reinsurance, and Risk Corridors of health insurance reform from Kaiser Family Foundation.  By Aug 17, 2016 | Cynthia Cox , Ashley Semanskee, Gary Claxton, and Larry Levitt

As of January 1, 2014, insurers are no longer able to deny coverage or charge higher premiums based on preexisting conditions (under rules referred to as guaranteed issue and modified community rating, respectively). These aspects of the Affordable Care Act (ACA) – along with tax credits for low and middle income people buying insurance on their own in new health insurance marketplaces – make it easier for people with preexisting conditions to gain insurance coverage. However, if not accompanied by other regulatory measures, these provisions could have unintended consequences for the insurance market. Namely, insurers may try to compete by avoiding sicker enrollees rather than by providing the best value to consumers. In addition, in the early years of market reform insurers faced uncertainty as to how to price coverage as new people (including those previously considered “uninsurable”) gained coverage, potentially leading to premium volatility. This brief explains three provisions of the ACA – risk adjustment, reinsurance, and risk corridors – that were intended to promote insurer competition on the basis of quality and value and promote insurance market stability, particularly in the early years of reform.

Background: Adverse Selection & Risk Selection

One concern with the guaranteed availability of insurance is that consumers who are most in need of health care may be more likely to purchase insurance. This phenomenon, known as adverse selection, can lead to higher average premiums, thereby disrupting the insurance market and undermining the goals of reform. Uncertainty about the health status of enrollees could also make insurers cautious about offering plans in a reformed individual market or cause them to be overly conservative in setting premiums. To discourage behavior that could lead to adverse selection, the ACA makes it difficult for people to wait until they are sick to purchase insurance (i.e. by limiting open enrollment periods, requiring most people to have insurance coverage or pay a penalty, and providing subsidies to help with the cost of insurance).

Risk selection is a related concern, which occurs when insurers have an incentive to avoid enrolling people who are in worse health and likely to require costly medical care. Under the ACA, insurers are no longer permitted to deny coverage or charge higher premiums on the basis of health status. However, insurers may still try to attract healthier clients by making their products unattractive to people with expensive health conditions (e.g., in what benefits they cover or through their drug formularies). Or, certain products (e.g., ones with higher deductibles and lower premiums) may be inherently more attractive to healthier individuals. This type of risk selection has the potential to make the market less efficient because insurers may compete on the basis of attracting healthier people to enroll, as opposed to competing by providing the most value to consumers.

The ACA’s risk adjustment, reinsurance, and risk corridors programs were 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.

Each program varies by the types of plans that participate, the level of government responsible for oversight, the criteria for charges and payments, the sources of funds, and the duration of the program. The table below outlines the basic characteristics of each program.

Table 1: Summary of Risk and Market Stabilization Programs in the Affordable Care Act
Risk AdjustmentReinsuranceRisk Corridors

the program does

Redistributes funds from plans with lower-risk enrollees to plans with higher-risk enrolleesProvides payment to plans that enroll higher-cost individualsLimits losses and gains beyond an allowable range

it was enacted

Protects against adverse selection and risk selection in the individual and small group markets, inside and outside the exchanges by spreading financial risk across the marketsProtects against premium increases in the individual market by offsetting the expenses of high-cost individualsStabilizes premiums and protects against inaccurate premium setting during initial years of the reform


Non-grandfathered individual and small group market plans, both inside and outside of the exchangesAll health insurance issuers and  self-insured plans contribute funds; individual market plans subject to new market rules (both inside and outside the exchange) are eligible for paymentQualified Health Plans (QHPs), which are plans qualified to be offered on a health insurance marketplace (also called exchange)

 it works

Plans’ average actuarial risk will be determined based on enrollees’ individual risk scores.  Plans with lower actuarial risk will make payments to higher risk plans.

Payments net to zero.

If an enrollee’s costs exceed a certain threshold (called an attachment point), the plan is eligible for payment (up to the reinsurance cap).

Payments net to zero.

HHS collects funds from plans with lower than expected claims and makes payments to plans with higher than expected claims. Plans with actual claims less than 97% of target amounts pay into the program and plans with claims greater than 103% of target amounts receive funds.

Payments net to zero.


it goes into effect

2014, onward          (Permanent)2014 – 2016                         (Temporary – 3 years)2014 – 2016
(Temporary – 3 years)

Risk Adjustment

The ACA’s risk adjustment program is intended to reinforce market rules that prohibit risk selection by insurers.  Risk adjustment accomplishes this by transferring funds from plans with lower-risk enrollees to plans with higher-risk enrollees. The goal of the risk adjustment program is to encourage insurers to compete based on the value and efficiency of their plans rather than by attracting healthier enrollees.   To the extent that risk selecting behavior by insurers – or decisions made by enrollees – drive up costs in the health insurance marketplaces (for example, if insurers selling outside the Exchange try to keep premiums low by steering sick applicants to Exchange coverage), risk adjustment also works to stabilize premiums and the cost of tax credit subsidies to the federal government.

Figure 1: Risk Adjustment Under the Affordable Care Act

Figure 1: Risk Adjustment Under the Affordable Care Act

Program Participation

The risk adjustment program applies to non-grandfathered plans in the individual and small group insurance markets, both inside and outside of the exchanges, with some exceptions. Plans in existence at the time the ACA was enacted in March 2010 were grandfathered under the law and are subject to fewer requirements. Plans lose their grandfathered status if they make significant changes (such as significantly increasing cost-sharing or imposing new annual benefit limits). Plans that were renewed prior to January 1, 2014, and are therefore not subject to most ACA requirements, are not part of the risk adjustment system. Multi-state plans and Consumer Operated and Oriented Plans (COOP) are subject to risk adjustment. Unless a state chooses to combine its individual and small group markets, separate risk adjustment systems operate in each market.

Government Oversight

States operating an exchange have the option to either establish their own state-run risk adjustment program or allow the federal government to run the program. States choosing not to operate an exchange or marketplace (and thus utilizing the federally-run exchange, called the Health Insurance Marketplace) do not have the option to run their own risk adjustment programs and must use the federal model. In states for which HHS operates risk adjustment, issuers are charged a fee to cover the costs of administering the program.

HHS developed a federally-certified risk adjustment methodology to be used by states or by HHS on behalf of states. States electing to use an alternative model must first seek federal approval and must submit yearly reports to HHS. States electing to run their own risk adjustment program must publish a notice of benefit and payment parameters by March 1 of the year prior to the benefit year; otherwise they will forgo the option to deviate from the federal methodology. Once a state’s alternative methodology is approved, it becomes federally-certified and can be used by other states. Massachusetts, the only state so far to operate its own risk adjustment program, will end is program in 2017. In 2017, HHS will operate risk adjustment programs in all states.

Calculation of Payments & Charges

Under risk adjustment, eligible insurers are compared based on the average financial risk of their enrollees. The HHS methodology estimates financial risk using enrollee demographics and claims for specified medical diagnoses. It then compares plans in each geographic area and market segment based on the average risk of their enrollees, in order to assess which plans will be charged and which will be issued payments.

Under HHS’s methodology, individual risk scores – based on each individual’s age, sex, and diagnoses – are assigned to each enrollee. Diagnoses are grouped into a Hierarchical Condition Category (HCC) and assigned a numeric value that represents the relative expenditures a plan is likely to incur for an enrollee with a given category of medical diagnosis. If an enrollee has multiple, unrelated diagnoses (such as prostate cancer and arthritis), both HCC values are used in calculating the individual risk score. Additionally, if an adult enrollee has certain combinations of illnesses (such as a severe illness and an opportunistic infection), an interaction factor is added to the person’s individual risk score. Finally, if the enrollee is receiving subsidies to reduce their cost-sharing, an induced utilization factor is applied to account for induced demand. Plans with enrollees that receive cost-sharing reductions under the ACA receive an adjustment because cost-sharing reductions may induce demand for health care and are not otherwise accounted for in the other premium stabilization programs. Once individual risk scores are calculated for all enrollees in the plan, these values are averaged across the plan to arrive at the plan’s average risk score. The average risk score, which is a weighted average of all enrollees’ individual risk scores, represents the plan’s predicted expenses. Under the HHS methodology, adjustments are made for a variety of factors, including actuarial value (i.e., the extent of patient cost-sharing in the plan), allowable rating variation, and geographic cost variation.   Under risk adjustment, plans with a relatively low average risk score make payments into the system, while plans with relatively high average risk scores receive payments.

Transfers (both payments and charges) are calculated by comparing each plan’s average risk score to a baseline premium (the average premium in the state). Transfers are calculated for each geographic rating area, such that insurers offering coverage in multiple rating areas in a given state have multiple transfer amounts that are grouped into a single invoice. Transfers within a given state net to zero.

On March 25, 2016, CMS hosted a public conference and released a white paper to review risk adjustment methodology and build on the first several years of experience. The white paper examined proposals to account for partial year enrollees and prescription drug use in the risk adjustment model. CMS intends to propose that the risk adjustment model begin to account for partial year enrollees in the 2017 benefit year, and begin to account for prescription drug utilization in the 2018 benefit year. Beginning in 2017, HHS will also begin to incorporate preventive services into their simulation of plan liability, and will incorporate different trend factors for traditional drugs, specialty drugs, and medical and surgical expenditures. This is intended to better reflect the growth of prescription drug expenditures compared to other medical expenditures. The risk adjustment model will be recalibrated using the most recent claims data from the Truven Health Analytics 2012, 2013, and 2014 MarketScan Commercial Claims and Encounters database (MarketScan). In response to issuer feedback from the 2014 benefit year of the risk adjustment program, CMS will also begin providing insurers with early estimates of health plan specific risk adjustment calculations. This is intended to give plans more timely information in order to set premiums. In addition, CMS has indicated that it is exploring other options to modify the permanent risk adjustment program to better adjust for higher-cost enrollees, as the temporary reinsurance program phases out in 2016.

Data Collection & Privacy

Under the federal risk adjustment program, to protect consumer privacy and confidentiality, insurers are responsible for providing HHS with de-identified data, including enrollees’ individual risk scores. States are not required to use this model of data collection, but are required to only collect information reasonably necessary to operate the risk adjustment program and are prohibited from collecting personally identifiable information. Insurers may require providers and suppliers to submit the appropriate data needed for risk adjustment calculations.

For each benefit year, an issuer of a risk adjustment covered plan or a reinsurance-eligible plan must establish a dedicated data environment (i.e. an EDGE server) and provide data access to HHS, in a timeframe specified by HHS, to be eligible for risk adjustment and/or reinsurance payments. CMS released guidance for EDGE Data submissions for the 2015 benefit year.

To ensure accurate reporting, HHS recommends that insurers first validate their data through an independent audit and then submit the data to HHS for a second audit.  For the first two benefit years (2014 and 2015) no adjustments to payments or charges were made as HHS optimized the data validation process. In 2016 and onward, if an issuer fails to establish a dedicated distributed data environment, fails to submit risk adjustment data, or if any errors are found through these audits, the insurer’s average actuarial risk will be adjusted, along with any payments or charges. Because the audit process is expected to take more than one year to complete, the first adjustments to payments (for the 2016 benefit year) will be issued in 2018.  Any issuer that fails to provide HHS access to EDGE server data in time to assess payments will be assessed a default risk adjustment charge. In 2015, 817 of 821 issuers participating in the risk adjustment program submitted the EDGE server data necessary to calculate risk adjustment transfers and 4 issuers were assessed the default charge.

Payments for the 2014 and 2015 Benefit Years

On Oct 1, 2015, HHS announced the results of the reinsurance, risk adjustment, and risk corridors programs for the first benefit year, 2014. For the 2014 benefit year of the risk adjustment program, $4.6 billion was transferred among insurers, and 758 total issuers participated in the program. An independent analysis found that the relative health of enrollees was the main determinant of whether an issuer received a risk adjustment payment. CMS reports that this is a sign that the risk adjustment formula is working as intended in transferring payments from plans with healthier enrollees to plans with sicker enrollees.

On June 30, 2016, HHS released a summary report on the results of the reinsurance and risk adjustment programs for the 2015 benefit year. For the 2015 benefit year of the risk adjustment program, risk adjustment transfers averaged 10% of premiums in the individual market and 6% of premiums in the small group market, similar to 2014. 821 issuers participated in the risk adjustment program. HHS also made available to each issuer of a risk adjustment covered plan a report that includes the issuer’s risk adjustment payment or charge.

Risk adjustment payments to issuers for benefit year 2015 will be sequestered at a rate of 7%, per government sequestration requirements for fiscal year 2016. HHS has suggested that risk adjustment payments sequestered in fiscal year 2016 will become available for payment to issuers in fiscal year 2017 without further Congressional action.


The goal of the ACA’s temporary reinsurance program was to stabilize individual market premiums during the early years of new market reforms (e.g. guaranteed issue). The temporary program is in place from 2014 through 2016. The program transfers funds to individual market insurance plans with higher-cost enrollees in order to reduce the incentive for insurers to charge higher premiums due to new market reforms that guarantee the availability of coverage regardless of health status.

Reinsurance differs from risk adjustment in that reinsurance is meant to stabilize premiums by reducing the incentive for insurers to charge higher premiums due to concerns about higher-risk people enrolling early in the program, whereas risk adjustment is meant to stabilize premiums by mitigating the effects of risk selection across plans. Thus, reinsurance payments are only made to individual market plans that are subject to new market rules (e.g., guaranteed issue), whereas risk adjustment payments are made to both individual and small group plans. Additionally, reinsurance payments are based on actual costs, whereas risk adjustment payments are based on expected costs. As reinsurance is based on actual rather than predicted costs, reinsurance payments will also account for low-risk individuals who may have unexpectedly high costs (such as costs incurred due to an accident or sudden onset of an illness). Under reinsurance, some plans may receive payments for high-cost/high-risk enrollees, and still be eligible for payment for those enrollees under risk adjustment.

While risk adjustment payments net to zero within the individual and small group markets, reinsurance payments represent a net flow of dollars into the individual market, in effect subsidizing premiums in that market for a period of time.  To cover the costs of reinsurance payments and administering the program, funds are collected from all health insurance issuers and third party administrators (including those in the individual and group markets). HHS issues reinsurance payments to plans based on need, rather than issuing payments proportional to the amount of contributions from each state.

Figure 2: Reinsurance Under the Affordable Care Act

Figure 2: Reinsurance Under the Affordable Care Act

Program Participation

All individual, small group, and large group market issuers of fully-insured major medical products, as well as self-funded plans, contribute funds to the reinsurance program. Reinsurance payments are made to individual market issuers that cover high-cost individuals (and are subject to the ACA’s market rules). State high risk pools are excluded from the program.

Government Oversight

States have the option to operate their own reinsurance program or allow HHS to run one for the state. For states that choose to operate their own reinsurance program, there is no formal HHS approval process. However, states’ ability to deviate from the HHS guidelines is limited: HHS collects all reinsurance contributions – even if the program is state-run – and all states must follow a national payment schedule. Additionally, states that wish to modify data requirements must publish a notice of benefit and payment parameters. States may collect additional funds if they believe the cost of reinsurance payments and program administration will exceed the amount specified at the national level. States wishing to continue reinsurance programs after 2016 may do so, but they may not continue to use funds collected as part of the ACA’s reinsurance program after the year 2018. Connecticut was the only state to operate its own reinsurance program for benefit years 2014 and 2015. In July 2016, Alaska signed into law a two-year reinsurance program that recreates Alaska’s high-risk pool as a reinsurance fund. Alaska’s reinsurance program will cover claims for 2015 and 2016 benefit years.

Calculation of Payments and Charges

The ACA set national levels for reinsurance funds at $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016.  Based on estimates of the number of enrollees, HHS set a uniform reinsurance contribution rate of $63 per person in 2014, $44 per person in 2015, and $27 per person in 2016.

Eligible insurance plans received reinsurance payments when the plan’s cost for an enrollee crossed a certain threshold, called an attachment point. HHS set the attachment point (a dollar amount of insurer costs, above which the insurer is eligible for reinsurance payments) at $45,000 in 2014 and 2015. Given the smaller reinsurance payments pool for 2016, HHS raised the attachment point to $90,000 for the 2016 benefit year. HHS also set a reinsurance cap (a dollar-amount threshold, above which the insurer is no longer eligible for reinsurance) at $250,000 in 2014, 2015, and 2016. HHS initially set the coinsurance rate (the percentage of the costs above an attachment point and below the reinsurance cap that were reimbursed through the reinsurance program) at 80 percent in 2014 and 50 percent in 2015 and 2016.  If reinsurance contributions exceeded the amount of payments requested, then that year’s reinsurance payments to insurers were increased proportionately (i.e. the coinsurance rate increased up to 100%). For example, in 2014, HHS was ultimately able to pay out 100 percent of claims rather than 80 percent, and in 2015 HHS raised the coinsurance rate to 55.1 percent. If surplus reinsurance funds remained available, they were rolled forward to the next benefit year. For example, $1.7 billion in surplus reinsurance funds collected for the 2014 benefit year were rolled forward to the 2015 benefit year. Similarly, if reinsurance contributions had fallen short of the amount requested for payments, then that year’s reinsurance payments would have decreased proportionately. Overall, total payments could not exceed the amount collected through contributions by insurers and third-party administrators.

States opting to raise additional reinsurance funds may do so by decreasing the attachment point, increasing the reinsurance cap, and/or increasing the coinsurance rate. States may not make changes to the national attachment point, reinsurance cap, or coinsurance rate that would result in lower reinsurance payments.

Data Collection & Privacy

Payment amounts made to eligible individual market insurers were based on medical cost data (to identify high-cost enrollees, for which plans receive reinsurance payment). Therefore, in order to calculate reinsurance payments, HHS or state reinsurance entities must either collect or be allowed access to claims data as well as data on cost-sharing reductions (because reinsurance payments were not made for costs that have already been reimbursed through cost sharing subsidies). In states for which HHS ran the reinsurance program, HHS used the same distributed data collection approach used for the risk adjustment program (i.e. an EDGE server) and similarly ensured that the collection of personally identifiable information was limited to that necessary to calculate payments. HHS proposed to conduct audits of participating insurers as well as states conducting their own reinsurance programs.

For the first two benefit years (2014 and 2015) no adjustments to reinsurance payments were made as HHS optimized the data validation process. In 2016, if an issuer fails to establish a dedicated distributed data environment or fails to adhere to reinsurance data submission requirements, the insurer may forfeit reinsurance payments. In 2015, 574 of 575 issuers participating in the reinsurance program submitted the EDGE server data necessary to calculate reinsurance payments.

Payments for the 2014 and 2015 Benefit Years

In June 2015, CMS announced the results of the reinsurance program for the first benefit year, 2014. In 2014, reinsurance contributions ($9.7 billion) exceeded requests for payments ($7.9 billion) and CMS was able to payout 100 percent of eligible claims rather than 80 percent – this amounted to $7.9 billion in reinsurance payments made to 437 issuers nationwide. Following these payments, approximately $1.7 billion in surplus reinsurance funds from the 2014 benefit year remained available, and were rolled forward to the 2015 benefit year.

CMS used this surplus of $1.7 billion, combined with additional collections of reinsurance contributions for the 2015 benefit year, to make an early partial reinsurance payment to issuers for the 2015 benefit year in March and April 2016. CMS calculated this early payment based on accepted enrollment and claims data as of February 1, 2016, at a coinsurance rate of 25%. CMS stated that reinsurance funds not paid out through this early payment will be paid out in late 2016, as part of the standard reinsurance payment process.

On June 30, 2016, CMS announced the results of the reinsurance program for the second benefit year, 2015. In 2015, estimated reinsurance contributions ($6.5 billion) were smaller than requests for payments ($14.3 billion). CMS estimates it will make $7.8 billion in reinsurance payments to 497 of the 575 participating issuers nationwide at a coinsurance rate of 55.1%.

CMS has collected approximately $5.5 billion in reinsurance contributions for 2015, with approximately $1 billion more scheduled to be collected on or before November 15, 2016. Any reinsurance contribution amounts collected above $6 billion for the 2015 benefit year are required to be allocated to the U.S. Treasury on a pro rata basis as an operating expense of the program. Combined with the surplus of $1.7 billion from 2014, CMS estimates it will have approximately $7.8 billion in reinsurance contributions available to be distributed as payments to issuers for the 2015 benefit year. On June 30, 2016 HHS made available to each issuer of a reinsurance-eligible plan a report that includes the issuer’s initial, estimated reinsurance payment for the 2015 benefit year. On August 11, 2016, CMS released an analysis based on reinsurance payments that suggests per-enrollee costs in the individual market were essentially unchanged between 2014 and 2015.

Reinsurance payments to issuers for benefit year 2015 will be sequestered at a rate of 6.8% per government sequestration requirements for fiscal year 2016. HHS has suggested that risk adjustment payments sequestered in fiscal year 2016 will become available for payment to issuers in fiscal year 2017 without further Congressional action.

Risk Corridors

The ACA’s temporary risk corridor program was intended to promote accurate premiums in the early years of the exchanges (2014 through 2016) by discouraging insurers from setting premiums high in response to uncertainty about who will enroll and what they will cost. The program worked by cushioning insurers participating in exchanges and marketplaces from extreme gains and losses.

Figure 3: Risk Corridors Under the Affordable Care Act

Figure 3: Risk Corridors Under the Affordable Care Act

The Risk Corridors program set a target for exchange participating insurers to spend 80% of premium dollars on health care and quality improvement. Insurers with costs less than 3% of the target amount must pay into the risk corridors program; the funds collected were used to reimburse plans with costs that exceed 3% of the target amount.

This program was intended to work in conjunction with the ACA’s medical loss ratio (MLR) provision, which requires most individual and small group insurers to spend at least 80% of premium dollars on enrollee’s medical care and quality improvement expenses, or else issue a refund to enrollees.

Program Participation

All Qualified Health Plans (or QHPs, plans qualified to participate in the exchanges) were subject to the risk corridor program. Only those plans with expenses falling outside of allowable ranges made payments to the program (or qualified to receive payments). Qualified Health Plan (QHP) issuers may also offer QHPs outside of the exchange, in which case the QHP outside of the exchange were also subject to the risk corridors program.

Government Oversight

The risk corridor program was federally administered. HHS charged plans with larger than expected gains and made payments to plans with larger than expected losses.

Calculation of Payments and Charges

Each year, each Qualified Health Plan was assigned a target amount for what are called allowable costs (expenditures on medical care for enrollees and quality improvement activities) based on its premiums. Allowable costs included medical claims and costs associated with quality improvement efforts, as defined in the ACA’s medical loss ratio (MLR) calculations. Insurers must also account for any cost-sharing reductions received from HHS by reducing their allowable costs by this amount. If an insurer’s actual claims fell within plus or minus three percent of the target amount (i.e. premiums less allowable costs), it made no payments into the risk corridor program and received no payments from it. In other words, the plan was fully at risk for any loss or gain. QHPs with lower than expected claims paid into the risk corridor program:

  • A QHP with claims falling below its target amount by 3% – 8% paid HHS in the amount of 50% of the difference between its actual claims and 97% of its target amount.
  • A QHP with claims falling below its target amount by more than 8% paid 2.5 percent of the target amount plus 80% of the difference between their actual claims and 92% of its target.

HHS provides an example of an insurer with a $10 million target amount and actual claims of $8.8 million (or 88% of the target amount). The insurer would have to pay $570,000 to the risk corridors program because (2.5%*$10 million) + (80%*((92%*10 million)-8.8 million) = 570,000.

Conversely, HHS reimbursed plans with higher than expected costs:

  • A QHP with actual claims that exceeded its target amount by 3% to 8% received a payment in the amount of 50% of the amount in excess of 103% of the target.
  • A QHP with claims that exceed its target amount by more than 8% received payment in the amount of 2.5% of the target amount plus 80% of the amount in excess of 108% of the target.

In response to reports of individual market plan cancelations in November 2013, HHS instituted a transitional policy allowing certain plans to be reinstated if state regulators agree to adopt a similar transitional policy. As this policy change affected the composition of the exchange risk pool, HHS modified the risk corridors program in 2015 to change the way allowable costs are calculated (i.e., by increasing the ceiling on administrative costs and the profit margin floor by 2 percent).

In the original statute, risk corridor payments were not required to net to zero, meaning that the federal government could experience an increase in revenues or an increase in costs under the program.  However, in the 2015 and 2016 appropriations bills, Congress specified that payments under the risk corridor program made to insurers in 2015 could not exceed collections from that year, and that CMS cannot transfer funds from other accounts to pay for the risk corridors program. This made the risk corridors program revenue neutral –meaning that only contributions collected from insurers could be used to fund payments for the risk corridor program. In the event that claims exceeded funds collected in a given year, CMS paid out claims pro rata and carried over deficiencies to be paid in the following year before any other claims are paid in that year. If the three-year risk corridors program ends with outstanding claims, HHS has stated it will work with Congress to secure funding for outstanding risk corridors payments, subject to the availability of appropriations.

Data Collection & Privacy

In order to calculate payments and charges for the risk corridors program, QHPs were required to submit financial data to HHS, including the actual amount of premiums earned as well as any cost-sharing reductions received. To reduce the administrative burden on insurers, HHS tied the data collection and validation requirements for the risk corridors to that of the Medical Loss Ratio (MLR) provision of the ACA. HHS will also conduct audits for the risk corridors program in conjunction with audits for the reinsurance and risk corridors program to minimize the burden on insurers.

Payments for the 2014 Benefit Year

On October 1, 2015, CMS announced that total risk corridors claims for 2014 amounted to $2.87 billion, and that insurer risk corridor contributions totaled $362 million. As a result, risk corridor payments for 2014 claims were paid out at 12.6% of claims. CMS anticipates that the remaining claims for 2014 will be paid out from 2015 risk corridor collections, and any shortfalls from 2015 claims will be covered by 2016 collections in 2017.  If there are still outstanding claims when the risk corridors program ends in 2017, HHS has stated it will work with Congress to explore other sources of funding for risk corridor payments, subject to availability of appropriations.


The Affordable Care Act’s risk adjustment, reinsurance, and risk corridors programs were designed to work together to mitigate the potential effects of adverse selection and risk selection. All three programs aimed to provide stability in the early years of a reformed health insurance market, with risk adjustment continuing over the long-term. Many health insurance plans are subject to more than one premium stabilization program, and while the programs have similar goals, they are designed to be complementary. Specifically, risk adjustment is designed to mitigate any incentives for plans to attract healthier individuals and compensate those that enroll a disproportionately sick population. Risk corridors were intended to reduce overall financial uncertainty for insurers, though they largely did not fulfill that goal following congressional changes to the program. Reinsurance compensated plans for their high-cost enrollees, and by the nature of its financing provided a subsidy for individual market premiums generally over a three-year period. Premium increases are expected to be higher in 2017 in part due to the end of the reinsurance program.

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