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Plans Brace for Data on Policies That Limit Losses and Profits

By Erin Mershon, CQ Roll Call

June 29, 2016 -- The Obama administration will outline for insurance companies how much they will owe or be owed under two programs designed to help stabilize the fledgling insurance marketplaces set up in the health law. The results will help determine whether and how the companies participate in those marketplaces.

Insurance companies will be watching to see how they fared in relation to other insurers in each market, which factors into the payment adjustments they get or owe under the so-called risk adjustment and reinsurance programs. For small insurers, unexpectedly large payouts could mean bankruptcy. Large insurers, too, will use the new information to determine whether to enter or exit certain markets or whether to raise premiums to cover unexpected costs, two industry sources said.

Stabilizing the insurance marketplace is a huge priority for the administration as it looks to improve the consumer experience on the exchanges set up under the federal health overhaul (PL 111-148, PL 111-152). Thursday's report will shed new light on the early results of ongoing efforts to improve the risk pool and to encourage insurers to continue participating in the exchanges, which is aimed at increasing enrollment and keeping premium increases to a minimum.

"These risk adjustment numbers are key to insurers' financial results," said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation. "Insurers don't know how well they're doing financially until they find out how much they owe into risk adjustment or get back. It's a big wild card."

The risk adjustment and reinsurance programs are two of three programs aimed at stabilizing premiums and are somewhat less controversial than the third, the law's risk corridor program. Under risk adjustment, the only program that won't expire after this year, money is reallocated from insurers with healthier customers to those who wound up with sicker customers. It aims to reduce incentives for insurers to avoid unhealthy customers.

The formula has been controversial, especially among some small and new insurers who had to pay more than they expected under its rules.  Some small insurers and some co-ops established by the law, including Evergreen Health in Maryland, argued that the rules unfairly penalize small and new insurance companies who have less experience with similar risk adjustment programs, like those used in the Medicare Advantage program.

The Centers for Medicare and Medicaid Services (CMS) has said it isn't fair to adjust the formula in the middle of the program, but released a white paper in March detailing some potential changes to explore in the future.

The report also will detail requests and payments under the law's reinsurance program, which helps offset especially high medical costs and which is entirely funded by the insurance companies themselves. Actuaries have calculated that the program is responsible for about 4 to 6 percent of premium costs. Its expiration in 2017 could drive increased premiums.

CMS said earlier this month it will pay 55 percent of reinsurance claims, rather than the 50 percent required by the health law, thanks in part to leftover funds from last year's reinsurance program.

The program has become a hot-button issue on Capitol Hill. Republicans on the Energy and Commerce Committee have threatened to subpoena the administration as part of an ongoing investigation into the program. Republicans allege the administration unlawfully diverted payments meant for the U.S. Treasury to insurance companies. The health law requires some of the funds for the program go to the Treasury, but the administration announced in 2014 it would prioritize payments to insurers and only allocate funds to the Treasury once insurers were paid in full.

The administration will release more information on risk corridor payments for the 2015 plan year later this summer, the industry sources said.

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