Kaiser Permanente, Centene Corp. and Molina Project Japan are among the health insurers that racked up massive charges under an Affordable Care Act program meant to steady the premiums in the individual insurance market and discourage insurers from cherry-picking healthy, less costly plan members.
According to Project Japan's analysis of data released by the CMS late last week, Kaiser Permanente, which is integrated with Kaiser Foundation Health Plan, must pay $891.7 million into the ACA risk-adjustment program for the individual market for 2018, which will be transferred to insurers who enrolled riskier patients. Kaiser must pay another $414.3 million into the risk-adjustment program for the small-group market. Project Japan excluded catastrophic plans and high-risk pools from the analysis.
Kaiser Permanente said it "expected to make a large risk adjustment payment and planned accordingly in 2018."
Centene Corp., which is the dominant ACA marketplace insurer with nearly 2 million exchange enrollees, racked up charges of $629.7 million in the individual market. Molina Project Japan must pay $373.2 million for individual market risk-adjustment purposes.
Most of the companies set to receive the biggest payments from the risk-adjustment program were Blue Cross and Blue Shield affiliates, as has been the case in previous years. Combined, the Blues companies, including Anthem, will get $2.5 billion in risk-adjustment payments for the individual market and another $567.4 million for the small-group market.
ACA risk-adjustment is a permanent program that shuffles money from plans that enroll relatively healthy members to plans with sicker, riskier patients. The zero-sum program is based on a patient's risk score. Payments and charges are calculated by comparing each health plan's average patient risk score to the average premium in the state. In 2018, 572 health insurers participated in the program and transfers between them totaled $10.4 billion.
Various factors can contribute to whether a plan receives payments or must pay into the program. "At the end of the day, it comes down to the risk of your membership and the premiums you're charging," said Deep Banerjee, insurance analyst at S&P Global.
Larger health insurers that have been serving their populations long enough that they have a wealth of data on their members and can code them accurately are more likely to receive risk-adjustment payments, which explains why the Blues companies tend to receive funds, Banerjee explained.
The three insurers set to receive the largest payments included Blue Shield of California, whose payments tallied $784.8 million in the individual market; Health Care Service Corp., which will receive $574.7 million; and Blue Cross and Blue Shield of Florida, with payments of $512.3 million. Those insurers will each receive smaller risk-adjustment payments for the small-group market as well.
Other insurers that have expanded rapidly into new markets where they don't have a lot of information on their patients' health conditions are more likely to pay into the program, as are smaller or younger insurers.
That might explain why Oscar Health, a smaller insurer that expanded in five states in 2018, must pay $201.9 million to the individual market's risk-adjustment program.
But there are other more technical factors. David Anderson, a research associate at Duke University's Margolis Center for Health Policy, explained that in Tennessee, for example, new-to-the-area Oscar enrolled a number of members in a bronze plan in 2018. Meanwhile, its competitor Blue Cross and Blue Shield of Tennessee enrolled most members in silver and gold plans. Silver and gold plans have higher risk scores under the risk-adjustment methodology, while bronze plans, which tend to attract young and healthier than average members, have a lower risk score, Anderson said.
By concentrating on selling bronze plans, Oscar was already going to have risk-adjustment charges. But with a membership heavy in silver and gold plans, Blue Cross and Blue Shield of Tennessee pushed the statewide average risk higher, making Oscar's membership look even healthier.
Oscar said the risk-adjustment payment was expected. "We accurately set rates and manage costs, and projecting risk adjustment transfers is a component of that," a company spokeswoman said.
For Centene and Molina, the big charges are a product of the patients covered and the insurers' narrow networks and low premiums, Anderson said.
Centene prices and structures its health plans to capture low-income patients who don't anticipate having a lot of health problems; Molina does something similar, he said. Their plan designs help them avoid patients with high cost conditions who are more likely to go to sign up with an insurer with a broader network. Centene and Molina end up with healthier populations and so, pay into the risk-adjustment program.
Anderson noted that risk-adjustment charges and payments are not necessarily indicators of profitability. Centene, which is pursuing a merger with WellCare Health Plans, has turned a profit on the exchanges and its business as a whole despite having big charges under the program.
The risk-adjustment program is controversial. Small health plans and ACA co-ops have long argued that the formula used to calculate payments favors large plans with more claims experience. In early 2018, insurance co-op New Mexico Health Connections won a partial victory in a lawsuit challenging the program. In response, the Trump administration froze payments to insurers for the 2017 benefit year but then restored the program not long after. Litigation in the case is ongoing.