Allowing Insurers to Withhold Data on Enrollees' Health Status Could Undermine Health Reform

[eridani]

Center on Budget and Policy Priorities
Allowing Insurers to Withhold Data on Enrollees' Health Status Could Undermine Key Part of Health Reform
http://www.cbpp.org/cms/index.cfm?fa=view&id=3640&emailView=1

Risk adjustment is one of the critical elements of health reform (i.e., the Affordable Care Act, or ACA) that's designed to encourage insurers to compete based on price and quality - not on attracting the healthiest enrollees and deterring those in poorer health, as they typically do today in the individual and small-group insurance markets.

Under the ACA's risk adjustment provision, insurers in the individual and small-group markets with sicker-than-average overall enrollment will receive payments to compensate them for their resulting higher costs. The payments will come from plans that enroll healthier-than-average people who do not cost as much to cover. By compensating insurers that enroll people in poorer health, risk adjustment reduces the incentive for insurers to "cherry pick" the healthy and avoid enrolling people with chronic illnesses and other serious health conditions.

To implement this "risk adjustment" provision, the federal government proposes that the entities administering risk adjustment - states or the U.S. Department of Health and Human Services (HHS) - determine the health status of plan enrollees based on data that insurers submit to them, which is similar to how risk adjustment in Medicare works today. But some insurance companies, as well as some House Republicans, are urging the federal government to allow insurers to measure the health status of their enrollees themselves without submitting any data.

Risk adjustment is an essential element of the Affordable Care Act. Letting insurers calculate their own risk scores without having to submit the underlying data needed to make sure those calculations are accurate would place the health reform law's risk adjustment system at substantial risk of error, upcoding, and fraud, threatening the long-term success of the exchanges and the major health insurance market reforms scheduled to take effect in 2014.

BlueCross BlueShield Association
http://www.regulations.gov/#!documentDetail;D=HHS-OS-2011-0022-0543
Letter to Centers for Medicare & Medicaid Services
Re: Proposed Rule for Standards Related to Reinsurance, Risk Corridors and
Risk Adjustment (CMS-9975-P)

We strongly recommend that HHS use a distributed model for accessing risk adjustment data. Our recommended model: 1) alleviates members' privacy concerns since States will not be collecting confidential, individually identifiable health information; 2) retains issuers' control of proprietary data that has strategic importance; and 3) allows States/HHS to maintain the same control over the process while alleviating the burden of creating, securing, maintaining and updating a large costly centralized multi-payer database.

National Bureau of Economic Research report on risk adjustment in the Medicare Advantage Program:
http://pnhp.org/blog/2011/10/03/private-medicare-plans-shockingly-game-risk-adjustment/

Thus the authors conclude that the Medicare Advantage program both increased total Medicare spending and transferred Medicare resources from the relatively sick to the relatively healthy, and that risk-adjustment was not able to address either of these problems.

Comment by Don McCanne of PNHP: Insurers that corner the market of healthy individuals have an unfair advantage over insurers that cover a greater number of high cost, sicker patients. To protect those insurers with high costs from failing in the markets, risk adjustment corrects for the market distortions by taking funds from the insurers with low cost patients and transferring them to the insurers with high cost patients.

Risk adjustment may be a great theory, but in practice it doesn't work very well. As an example, even though prohibited from selectively enrolling healthier patients, Medicare Advantage plans have been very successful at selectively marketing to the healthy. Insurers end up with significantly lower costs, even though they are paid higher amounts than are paid for patients in the traditional Medicare program.

My comment: Local insurers in my area are offering Medicare Advantage plans with subsidised exercise club memberships--Silver Sneakers. Nice extra benny, but seniors with health problems serious enough that they can't use an exercise club are obviously not going to go for those plans. By eliminating sick people, they stand to save far more than the exercise club subsidies will cost them. very sneaky cherry picking.

[eridani]

1. Informational kick n/t