'Risk adjustment' threatens Obamacare

Op-ed: The single biggest threat to Obamacare is the agency tasked with implementing it.

The single biggest threat to the survival of the Affordable Care Act (ACA) is not the Republican-led legislative effort to repeal it. Nor is it inadequate enrollment. It is inaction by the administration's own agency that is tasked with implementing Obamacare: the Centers for Medicare and Medicaid Services (CMS), a division of the Department of Health and Human Services (HHS).

The specific issue that so seriously threatens the ACA is risk adjustment, one of the so-called 3R's of the ACA. Risk adjustment is intended to smooth out the unpredictability of the health insurance marketplace, which is the result of the vital ACA requirement that all Americans be offered affordable coverage regardless of health condition. While well-intended, the implementation of this safeguard has had the unintended consequence of a "reverse Robin Hood effect"— taking money from predominantly new, small, innovative plans (the new competitors that the ACA hoped would add both choice and innovation to health insurance markets around the country) and giving it to the big, established insurance carriers. The enormous risk adjustment windfall that went to the big multi-state insurance corporations is partly responsible for the current merger frenzy that will certainly result in less choice for Americans in insurance markets nationwide.

Unfortunately, to date, CMS has refused to amend the risk adjustment formula or process. The consequences of this decision directly affect the viability of many of the new small health insurance entrants (including non-profit co-ops) in each state. However, the impact goes far beyond the fate of these new insurance carriers. A lack of movement to level the risk adjustment process severely threatens the attainment of the ACA's primary goal: encouraging new competition in previously stagnant health insurance markets around the country, thus providing more choice, more innovation and lower prices in those markets. Co-ops have done just that: In states with co-ops, premiums are 6 to 9 percent lower than in states without co-ops. Co-ops have also brought innovative approaches to the marketplace and, thus, additional choices to consumers. For example, my organization, Evergreen Health (Maryland's co-op), offers a value-based insurance design product for diabetic patients, which removes virtually all financial barriers — co-pays, co-insurance and deductibles — to services, medications and care that are needed to keep a diabetic patient from developing the myriad complications of that disease. Ironically, as it is now, if an insurance carrier keeps its patients healthy, it could very well result in larger risk adjustment payments to its competitors.

Even worse, by knocking many of the new entrants out of their respective markets, CMS will be complicit in reducing the affordability of health coverage in those markets, due to lack of competition. In short order, as premiums continue to rise, young and healthy individuals (who previously concluded that getting covered was a financially viable alternative to paying the tax penalty for not having coverage) will be priced out of the market. As they leave, premiums will continue to rise to cover the costs of sicker and more expensive patients. In short order, the so-called "death spiral" will likely develop in affected markets, effectively destroying the Affordable Care Act. It is, therefore, an absolute necessity that CMS/HHS address the risk adjustment process as quickly as possible.

The simplest option is a percentage limit on risk adjustment payments assessed to insurance carriers. This solution, supported by numerous state insurance commissioners throughout the country, would act as a "circuit breaker," where a risk adjustment payment assessed to any insurer would be capped at no more than 2 percent of a carrier's premium for the year. This action would avert significant financial damage to the small insurance carriers that are so important to the success of the ACA. This cap could even result in the carrier's own policyholders receiving a premium rebate that would not have been possible under the current risk adjustment process.

This decision rests solely with the administration. No congressional action is required — all the administration needs to do is act. Let's hope they do so, and soon.

Dr. Peter Beilenson is CEO of Evergreen Health and a former Baltimore City health commissioner and Howard County health officer. His email is pbeilenson@verizon.net.

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