Initiative for Health Care Affordability Issues Public Comment on Centers for Medicare & Medicaid Services Proposed Rule
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The Initiative for Health Care Affordability (IHCA) is pleased to offer the following comments to the
IHCA is a coalition of regional health plans that seeks to improve consumer access to affordable health insurance options on the Affordable Care Act (ACA) individual marketplaces. IHCA coalition members are regional carriers based in
IHCA is dedicated to improving choice and competition in the ACA marketplaces, including through reform of the risk adjustment program. We are concerned with several problematic features of the current risk adjustment methodology. First, the current program limits the ability of smaller, regional plans to predict the scale of risk transfer amounts from year to year. Lacking access to meaningful, timely data, smaller regional plans cannot set premiums accurately, and large fluctuations occur in risk adjustment transfers. Second, the risk adjustment calculation wrongly incentivizes health plans to avoid younger, healthier enrollees. Young and healthy enrollees are critical to a balanced risk pool with affordable premiums. Third, the risk adjustment calculation is based upon a faulty cost-scaling factor - statewide average premium - that causes unjustifiable, large transfer payments, which inappropriately subsidize administrative costs of less efficient insurers.
We recognize and appreciate CMS' efforts in the proposed rule to improve the current risk adjustment program, including proposals to address concerns raised by regional health plans. We support substantial aspects of the proposed rule. However, CMS needs to take additional steps beyond what was proposed to ensure that the risk adjustment program serves to enhance the ACA marketplaces and not weaken them.
More specifically, IHCA:
* Supports the proposed earlier release of updates to the risk adjustment model coefficients, but also recommends that the coefficients include the most recently available data submitted by health plans.
For Benefit Year 2022 (BY2022), we recommend that CMS include data from 2019 as part of the three-year average to produce the final BY2022 risk adjustment model coefficients if the BY2019 data can be released by CMS by the end of
* Encourages CMS to add additional datapoints to the interim and final reports which would assist health plans to price products accurately and increase the stability of the markets;
* Supports the proposed changes to the risk adjustment model specifications, but requests additional detail related to the updated modeling; and
* Requests the cost scaling factor in the risk adjustment transfer formula exclude features of the health plan premiums unrelated to enrollee actuarial risk, such as administrative costs.
I. Data Used and Released Related to the Risk Adjustment Model
The availability of updated risk adjustment coefficients and data related to the risk adjustment program are critical to the stability of the health insurance marketplaces. This information is needed to help health plans appropriately price their products, as well as maintain and increase competition in the marketplaces. While IHCA supports the proposal to release completed hierarchal condition categories (HCCs) when NBPPs are proposed, we are concerned that the data will not be the most up-to-date and may not match actual changes in the enrollee population. Additionally, IHCA believes the goal of increasing stability in the marketplaces and assisting health plans in the pricing process can be furthered by releasing additional datapoints related to risk adjustment.
A. Proposed Changes to the Data Used in the Risk Adjustment Model Recalibration
CMS proposes to update the datasets used in the annual recalibration of risk adjustment models from the three most recent consecutive datasets available at the time of publication of the final NBPP to the three most recent consecutive datasets available at the time of the release of the proposed NBPP. CMS states the purpose for this proposed change is to promote stability and avoid delays in the publication of coefficients, as well as a desire from past commentators to incorporate this information while plans price products.
IHCA generally supports the proposal to release the risk adjustment model recalibrations in the proposed NBPP with an important caveat. First, the finalization of the risk adjustment coefficients toward the end of the rate-setting process for BY2021 hindered the ability of plans to set accurate rates.
The final coefficients were not made available until
As such, we appreciate that CMS proposed that the coefficients in the BY2022 proposed NBPP would be the finalized coefficients. However, the coefficients will not include the most up-to-date experience and we are concerned that utilizing older data (BY2016, BY2017, and BY2018 versus BY2017, BY2018, and BY2019) in the recalibration of the risk adjustment models does not accurately reflect the reality of the marketplaces in the benefit year. This is particularly true in the ACA individual and small group markets because of the wider degree of volatility that those markets represent. This problem will be particularly prevalent in BY2022 and in models for future years given the impact of the COVID-19 pandemic. Many individuals have experienced changes in coverage as a result of the pandemic and the diagnosis and treatment of many medical conditions has been impacted which will likely result in unanticipated downstream effects to the individual and small group markets, including as it relates to the risk adjustment process.
CMS should work to ensure that the most recent year's data is included. Since health plans are required to submit all claims information by
So long as the final coefficients are known by the end of March, plans can properly incorporate risk adjustment coefficients for rate-setting for the following year. Therefore, we recommend that so long as the final risk adjustment coefficients, including BY2019 data, are released by the end of March, CMS include the BY2019 data and produce coefficients that are an average of BY2017, BY2018, and BY2019.
B. Releasing Additional Datapoints in Interim and Final Reports Related to the Risk Adjustment Program
In a recent paper on the ACA risk adjustment program, which was supported by the IHCA,
While an earlier release of the final risk adjustment model coefficients will help health plans during the pricing process and increase stability in the marketplaces, the release of additional datapoints based on statewide marketplaces would bolster this goal further because risk adjustment transfers are determined on a statewide basis. Increasing access to this important information would further assist health plans to anticipate changes and trends in their individual state markets. Access to key information related to risk adjustment is critical to the stability of the ACA marketplaces, health plans, and the beneficiaries they serve.
Currently, information related to the risk adjustment program is released in the form of an interim (released in the Spring of each year and based on the first three quarters of enrollee data from the previous benefit year) and a final report (based on all four quarters of the preceding benefit year and released in the summer). While these reports include information useful to health plans, these reports are released late in the pricing process for many health plans. Additionally, further data points would also be helpful to give health plans a greater understanding of risk adjustment, including the wider marketplaces in each state.
We propose CMS release a second interim report in the Fall of the benefit year based on the first two quarters of enrollee data from that benefit year. In addition to the current datapoints included in the reports, we also propose adding additional datapoints, such as: (1) incidence of each HCC at both state and national levels over the previous three-year period; (2) membership; (3) age distribution; and (4) exchange suffix distribution broken down by both metal level and geographic region. We believe an additional interim report, as well as the previously described datapoints, would help to further stabilize the ACA markets and assist health plans in more accurately and efficiently pricing insurance products.
II. Risk Adjustment Model Updates
In previous proposed and final NBPPs, CMS noted the risk adjustment model underpredicts plan liability for enrollees without HCCs and those with the highest HCC counts, as well as overpredicting plan liability for enrollees with low HCC counts. While CMS has acknowledged this issue and solicited comments on potential solutions in past NBPPs, no solution has been finalized.
IHCA supports the proposed methodological changes to increase the accuracy of the risk adjustment model. According to a comprehensive review of our plans' financial performance, our plans are losing money on individuals without any HCCs because of excessive risk adjustment obligations and making the most money on older enrollees with at least one HCC because of excessive risk adjustment receipts.
Regional health plans with approximately the same percentage of enrollees with HCCs as the national average lost substantial amounts of money on individuals with no HCCs because of excessive risk adjustment outflows./2
In fact, the analysis found that in many cases health plans were paying more in risk adjustment transfers than premiums collected for these individuals, thus discouraging the enrollment of healthier beneficiaries. In other words, risk adjustment is not functioning to make insurers' indifferent to the health status of enrollees. Blase's analysis concluded that at least some HCCs must be overvalued and recommended that CMS recalibrate the HCCs to improve accuracy./3
Moreover, since our plans are losing money on enrollees, particularly younger enrollees without any HCCs, risk adjustment is discouraging the formation of balanced risk pools.
Based on Blase's analysis and our plans' experiences, we applaud CMS for proposing changes to increase the predicative accuracy of the risk adjustment models, particularly as is relates to individuals without HCCs and those with the most HCCs. That said, it would be helpful if CMS could provide additional details on how it proposes to update the process for determining recalibrated HCCs to give health plans better insight into the updated process and its potential implications.
III. HHS Risk Adjustment Transfer Formula Methodology
CMS proposes to continue to utilize the same risk adjustment transfer formula which was finalized for BY2021. The proposed risk transfer formula includes a 14 percent administrative cost reduction to the statewide average premium scaling factor utilized in the formula.
Statewide average premium is not an accurate scaling factor of the actuarial risk of a health plan's enrollees. As CMS has acknowledged, administrative costs may include items such as quality improvements, margin, rent, taxes and fees, employee salaries, and marketing that are unrelated to the health of plan enrollees. These costs also vary drastically between insurers depending on strategy, size, location, and resources. Unsurprisingly, non-claims costs vary from state to state, and plan to plan.
Instead, we believe statewide average claims costs are the only true measure of the actuarial risk health plans undertake. Actual claims costs reflect the healthcare claims that are actually paid by the plan, meaning that actual claims costs measure actuarial risk in an easily quantifiable and transparent way and a statewide aggregate of this information gives a more accurate statewide estimate for risk.
There is also an important statutory argument to using actual claims costs. Under 42 U.S.C. 18063(a), "a charge or a payment is made on health plans . . . if the actuarial risk of the enrollee of such plan or coverage for a year is less than/greater than the average actuarial risk of all enrollees in all plans or coverage in such State for such year[.]" This means that CMS must devise a way to transform a plan's relative "actuarial risk" into a "charge," or put another way, a method to convert risk into dollars. The method applied in the current formula erroneously relies upon the "statewide average premium" to make this conversion. Premiums reflect liability differences that are not attributable to risk. This is because plan premiums incorporate administrative costs (or "non-claims costs") that are generally fixed costs having no relationship to the underlying risk of a health plan.
Actual claims costs are a better representation of actuarial risk since unlike premiums, claims reflect actual health care expenses and largely exclude costs unrelated to medical risk. Taken further, a statewide average of such actual claims costs measures statewide actuarial risk in an easily quantifiable and transparent way. This certainly seems like a better reading of the statute.
If CMS continues to use statewide average premium, we recommend a reduction of 20 percent be applied to ensure that non-claims costs are not accounted for as a component of risk adjustment transfers via the scaling factor. The current 14 percent reduction does not fully account for administrative and other non-claims costs. Statutorily, 80 percent of all premiums must be utilized to pay health claims and certain other expenses, or plans are required to issue rebates to enrollees. In fact, on many occasions risk adjustment transfer recipients have also been forced to pay rebates back to their beneficiaries because their non-claims costs exceeded 20 percent of premiums. This fact alone demonstrates that risk adjustment transfers are likely excessive and show an underlying problem with the risk adjustment formula. Given that a number of health plans receiving risk adjustment transfer payments must pay rebates to their beneficiaries it would appear the 14 percent administrative reduction is insufficient and should be increased. Given the requirements that at least 80 percent of premiums be used for health claims, 20 percent is a more appropriate reduction than the current 14 percent, which can serve as a vehicle for improper and excessive payments. Even if CMS finalizes this aspect of the rule as was proposed, it should study the correlation between risk adjustment payments and rebates.
While we recognize that CMS has repeatedly published details relating to the determination of the 14 percent administrative reduction, we do not believe this explanation is sufficiently detailed to allow health plans to understand the methodology and request further details on the process be publicly released. Furthermore, we request that CMS indicate in its response to these comments what information it would find helpful to evaluate the sufficiency of the 14 percent administrative reduction.
IHCA recognizes that states can request reductions in risk adjustment transfer payments to provide additional market stability. In the proposed rule, CMS plans to expand the time period over which states can make such requests from one year to three years and streamlines the process. While we appreciate the intent of this proposed change is to increase stability in ACA marketplaces by expanding state-based opportunities to alter risk adjustment transfer amounts, we are skeptical many states will pursue this option even if excessive risk adjustment is harming their individual and small group markets.
At this juncture,
CONCLUSION
IHCA is appreciative of the opportunity to comment on the proposed BY2022 NBPP and for CMS' work as it relates to the risk adjustment program. We appreciate the changes made by CMS to release risk adjustment model coefficients earlier, though we believe it would be most helpful for these coefficients to be based on the most recent data available, including BY2019 data in this case. We also appreciate the updates to the risk adjustment model to better account for the healthiest and sickest enrollees and request additional detail on the new methodology. Finally, we urge CMS to reconsider the retention of the current scaling factor in the risk adjustment transfer formula even with a 14 percent reduction or at the very least request further detail and background on how CMS determined the 14 percent figure.
In this proposed rule, CMS has made risk adjustment more of a priority than any past NBPP. We appreciate that focus, and the willingness of CMS to engage in a public dialogue on this important program. We believe that with the additional improvements recommended in this comment, choice and competition will be increased and consumers will receive more affordable health insurance options.
Again, we thank you for this important opportunity. Please feel free to contact us with any additional questions.
Sincerely,
President
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Footnotes:
1/
2/ Id at 13-14.
3/ Id at 18.
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The proposed rule can be viewed at: https://www.regulations.gov/document?D=CMS-2020-0151-0005
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