House Energy and Commerce Subcommittee on Health Hearing
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Good afternoon, Mr. Chairman and Members of the Committee. My name is
Two times in recent history, the
To address these uncertainties, the
Here is a quick review of the "
Reinsurance is a means of insuring the insurers by providing extra payments if an excessive number of their enrollees incur unusually high costs, such as having more accidents or more cancer diagnoses than average. As with risk adjustment, the intent is to make sure that plans are not penalized or rewarded based on how many high-cost people they enroll and to reduce incentives to avoid high-cost individuals. In
Risk corridors (or risk sharing) involve creation of a fund so that plans with unusually high gains pay back some of those gains and those with unusually high losses are partially compensated. The idea is to keep premiums affordable and to reduce the risk faced by plans during the first years of the program as they learn from experience how to price their plans accurately. The risk corridors in both programs are designed on a two-sided basis to limit both health plan losses and health plan gains. If plans underestimate costs, they receive payments from the government to reduce, but not eliminate, the loss. If plans overestimate costs, they make payments to the government to reduce, but not eliminate, the gain. In the ACA risk corridor system, which expires after 2016, health plans retain all gains or losses if claims are within 3 percent of expected spending. If actual claims exceed expectations by more than 3 percent, the federal government reimburses 50 percent of the loss between 3 percent and 8 percent or 80 percent of any loss exceeding 8 percent. Similarly, the health plan pays the federal government 50 percent of gains between 3 percent and 8 percent and 80 percent of any gains over 8 percent. Under this design, all health plans maintain a share of the risk for any losses and thus retain an incentive to set premiums as accurately as possible. n1
These risk mitigation measures have been in use for Part D for nine years. So how have these measures worked in Part D? n2 The best measure of their success is that participation by both health plans and
In contrast to the idea that risk corridors are solely a means of bailing out plans, the experience in Part D suggests that they have actually protected taxpayers. In each of the program's first seven years, plans as a whole made net payments back to the government as a result of greater profits than expected from their bids, as opposed to receiving payments from the government. In 2012, the most recent year for which data are available, the plans paid
All of the "
n1
n2
Read this original document at: http://docs.house.gov/meetings/IF/IF14/20140728/102551/HHRG-113-IF14-Wstate-HoadleyJ-20140728.pdf
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