Affordable Care Act risk transfers calculated using RTI International-developed methodology

RESEARCH TRIANGLE PARK, N.C. – For the first time, the U.S. federal government has calculated risk transfers among insurers participating in the state individual and small-group health insurance markets established under the Affordable Care Act. Researchers from RTI International and the Center for Medicare & Medicaid Service's Center for Consumer Information and Insurance Oversight (CCIIO) jointly developed the methodology behind the risk transfers for the Department of Health and Human Services.

Researchers based the risk adjustment methodology on the premise that premiums should reflect the differences in plan benefits, quality and efficiency – not the health status of the enrolled population.

According to CCIIO, the program reduces the incentives for issuers to avoid those enrollees and diminishes the potential effect of risk selection on the premiums charged by providing payments to health insurance issuers that attract high-risk enrollees, such as those with chronic conditions. Therefore, the program gives an incentive to insurance issuers to provide coverage with appropriate benefits and services at an affordable premium.

"The goal of the risk adjustment transfers is to compensate issuers that enrolled higher risk individuals and to protect against adverse selection within a market within a state," said John Kautter, Ph.D., RTI project director. "CCIIO's preliminary analysis of the 2014 risk adjustment transfers shows that our risk adjustment methodology is working as intended."

The Department of Health and Human Services applied the methodology in 49 states and the District of Columbia, transferring funds from plans with low risk enrollees to plans with high-risk enrollees. The methodology accomplishes this by determining each plan's risk adjustment amount based on the calculated risk of enrollees, the calculated value of coverage, usage and the cost of doing business in local areas, and the effect of different cost-sharing levels on utilization.

CCIIO recently released a report describing 2014 risk transfer results by state and according to the report, issuers redistributed 10 percent of nationwide individual market premiums through risk transfers.

Using RTI's methodology (overview, model, transfers), the report found that the following received risk adjustment payments:

• Issuers that enrolled a large share of HIV/AIDS patients, whether because they offered more robust prescription drug coverage or contracted with the Ryan White Foundation
• Issuers that attracted more high-risk patients due to networks that include key specialty hospitals
• Issuers that had a history of serving high risk individuals as the issuer of last resort and therefore enrolled a disproportionate number of expensive consumers
• Small plans with isolated cases of catastrophically ill individuals

 Find more information on the published methodology in the Federal Register.