Final Rules on Reinsurance, Risk Adjustment and Risk Corridor Programs
The Department of Health and Human Services (HHS) has issued final regulations addressing three programs intended to reduce the potential effects of adverse selection and premium instability once the insurance exchanges required under health care reform become operational. The three programs are reinsurance, risk adjustment and risk corridors.
Final rules addressing the reinsurance, risk adjustment and risk corridor programs have been issued by HHS under health care reform. These programs are intended to address potential adverse selection and premium stabilization issues involving implementation of the insurance exchanges under health care reform.Close speedread
HHS has issued final regulations addressing the following three programs, which are intended to address potential adverse selection and premium stabilization issues that may arise following implementation of the insurance exchanges under health care reform:
Transitional reinsurance program.
Permanent risk adjustment program.
Risk corridor program.
Transitional Reinsurance Program
Health care reform requires that a transitional reinsurance program be established in each state to help stabilize premiums for coverage in the individual market during the first three years of the insurance exchanges (2014 through 2016). The program requires that contributions for reinsurance payments to certain individual market insurers that cover individuals with expensive claims be made by:
All health insurers.
Third-party administrators (TPAs) on behalf of self-insured group health plans.
The goals of the reinsurance program include:
Stabilizing premiums by assisting health insurers with medical cost overruns for high-cost enrollees in the individual market.
Allowing contributions collected by or on behalf of a state to remain in that state.
Under the final regulations:
States may establish a reinsurance program regardless of whether they implement an insurance exchange.
HHS will establish the reinsurance program and perform reinsurance functions for states that do not establish an exchange.
Reinsurance payments will be a percentage of costs paid for an enrollee between:
The dollar threshold at which an enrollee's claims costs are eligible for reinsurance payments (the attachment point).
The applicable payment limit.
Permanent Risk Adjustment Program
States must also establish a permanent risk adjustment program for non-grandfathered small group health plan and individual markets both inside and outside the insurance exchanges (for more information on grandfathered plans, see Practice Note, Grandfathered Health Plans under Health Care Reform (www.practicallaw.com/5-506-1552)). The goal of the risk adjustment program is to reduce premium differences resulting from unfavorable risk selection in the small group and individual markets.
States can, but are not required to, implement a risk adjustment program. For states that do not establish a risk adjustment program, HHS will:
Establish the program.
Perform risk adjustment functions for the state.
In the preamble to the final regulations, HHS acknowledged an inconsistency between the deadline for:
Completing the risk adjustment process under the final regulations.
Submitting reports involving health care reform's medical loss ratio (MLR) rules, which generally require insurers to provide rebates to enrollees if the insurer's spending on health claims, relative to the premiums charged, is less than certain stated percentages (see Legal Update, Guidance on Plan Asset Implications of Medical Loss Ratio Rebates (www.practicallaw.com/0-515-2012)).
The deadline for submitting MLR reports to the government is June 1 of the year following the calendar year experience being reported, whereas the final regulations include a June 30 deadline for completing the risk adjustment process. According to HHS, it would be extremely difficult to complete the risk adjustment process within current MLR timeframes.
Risk Corridor Program
The risk corridor program creates a cost-sharing process between:
Qualified health plans (QHPs) under the insurance exchanges.
The federal government.
QHPs with costs that are at least:
3% lower than the QHP's projected costs can submit charges to HHS to receive a percentage of these savings.
3% higher than the QHP's costs projections can receive payments from HHS reflecting a portion of those losses.
HHS will administer the risk corridor program, which will apply for the first three years the insurance exchanges are in operation (2014 through 2016).