Current Risk-Adjustment Approach Underpaid Insurance Carriers for Part-Year Members

Policy changes are needed to increase risk-adjustment payments for special enrollment period (SEP) enrollees. A new study in Health Affairs, the current payment-adequacy difference between full-year members and SEP enrollees has a high probability of increasing.

SEPs allow consumers to sign up outside of the open enrollment period (OEP) when certain life events, like losing employer-sponsored health insurance due to unemployment, occur. Previous literature estimated that 30 million Americans spend a period during the year without insurance as a result of job loss, with only 5% of this population enrolling into SEPs.

In 2017, HHS changed risk adjustment to include the length of time a person was a plan member with a carrier. This increased payments for SEP enrollees and those who enrolled during an open period but lost coverage in the same year. Payments will increase again in 2018 on the basis of prescription drug category factors that signal the severity of conditions, making enrollees more of a risk to carriers. In addition, insurance companies believe SEP enrollees are more of a risk in general, explaining their increased payments.

Risk adjustment must be effective to achieve insurance market reform and to expand coverage to SEP enrollees. The study incorporated claims data from 2 large nongroup carriers to see if 2015 risk-adjustment models underpaid for SEP enrollees and part-year members compared to full-year members.

The 2 carriers analyzed offer distinct characteristics. One serves the residents of a single state while the other operates across state borders. Both have different payment arrangements for agents, and the states they serve vary based on Medicaid eligibility, application assistance networks, and demographics of the served regions.

To measure the adequacy of risk adjustment, the researchers looked at the ratio of paid claims to risk score and the medical loss ratio after risk adjustment. Members with 10 to 12 months of enrollment were considered full-year members. Those who enrolled after March were titled as SEP enrollees.

The data show that the risk-adjustment model in 2015 underpaid carriers for part-year members, with the largest degree of underpayment for SEP enrollees. The degree of underpayment depended on whether coverage started during the OEP or an SEP. For Insurer A, the average enrollment for OEP part-time enrollees was 3.8 months compared with 4.5 months for SEP enrollees. Additionally, undiagnosed conditions were more common among full-year members and less frequent among SEP enrollees.

The researchers believe changing the current risk adjustment to provide adequate payment for SEP enrollees will be the most effective way to increase the number of carriers serving this population.

“Recent policy changes represent important steps that partially rectify this shortfall,” the authors concluded. “However, further increases to risk-adjustment payments for SEP enrollees are probably needed to enable carriers to compete by offering value to all eligible consumers throughout the year, rather than by avoiding the many uninsured consumers who qualify for special enrollment.”

References

Dorn S, Garrett B, Epstein M. New risk-adjustment policies reduce but do not eliminate special enrollment period underpayment. Health Aff. 2018;37(2). https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2017.0970. Published online February 5, 2018. Accessed February 22, 2018. doi: 10.1377/hlthaff.2017.0970.