A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation describes the Affordable Care Act’s (ACA’s) premium stabilization programs that encourage insurers to participate in the exchanges by eliminating unpredictability around new enrollees. With the new restrictions on premium setting and the unpredictability of medical expenses from the newly insured, insurers face a high level of uncertainty when setting their premiums. In order to protect insurers from high losses in the initial years, keeping premiums affordable, encouraging insurers to participate in the exchanges, and minimizing year-to-year premium fluctuations, the ACA authorized three premium stabilization programs—risk adjustment, reinsurance, and risk corridors, the primary focus of this brief.
Topics covered in this brief include:
- What’s the background, and what’s in the law? As the brief explains, risk adjustment, reinsurance, and risk corridors (known collectively as the “three Rs”) help keep premiums stable by providing a buffer for insurers with a large number of enrollees who have high medical expenses. Insurers are also offered relief in the event that they have not adequately priced their plans. The risk corridor program, detailed in Section 1342 of the ACA, requires the Department of Health and Human Services (HHS) to set up a temporary risk corridor program (for plan years 2014–16) to help reduce pricing uncertainty in the new health insurance exchanges.
- What’s the debate? The brief notes that the risk corridor program has proven to be one of the more controversial aspects of the ACA, with some critics calling it an insurer bailout, encouraging insurers to underprice their plans in order to gain market share, knowing the federal government will offset their losses. On the other hand, the program has been supported by economists, health policy experts, insurance companies, and regulators, emphasizing the ACA risk corridor was modeled after a similar program in Medicare Part D, signed by President George W. Bush. The brief elaborates on some of the points of contention: HHS’s aim of maintaining budget neutrality, for example, has been a concern to some insurers, fearing that the total revenue raised in a given year might not be able to cover the program.
- What’s next? Since the ACA became law, HHS has proposed a number of changes to the risk corridor program, affecting profit/loss margins and allowable administrative costs. Members of both chambers of Congress have proposed legislation with a range of purposes, including eliminating the program altogether. The Congressional Research Service recommends that the program be funded through a Congressional appropriation—an unlikely outcome in this political climate. As the brief concludes, changes to the risk corridor program could drive insurers’ decisions to participate in the exchanges and their ability to set premiums.
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