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Results are in: Reinsurance and risk adjustment

The seminal reporting period for Marketplace-participating plans has closed and the results are in. Where does the industry go from here?

It has been a busy two weeks at CMS. On June 25, 2015, the long-awaited King v. Burwell decision was delivered, in which the Court upheld the outlay of premium tax credits to qualifying persons whose health insurance coverage is subject to the Patient Protection and Affordable Care Act (PPACA). This is inclusive of all states, both those with exchanges established directly by a state, and those otherwise established by the Department of Health and Human Services. In a follow-up address, President Obama expressed his desire to extend coverage to even more Americans on the heels of this victory. The significance of this victory is the resulting stability of insurers as the markets further expand. The industry will avoid the predicted "death spiral," which is described as a "condition of the insurance market in which costs rapidly increase as a result of changes in the covered population."

An adverse decision most certainly would have resulted in changes to the covered population as millions of American could have lost the tax subsidies that allowed them to afford their health care coverage. As if to add the exclamation point to the statement, "The ACA is Here to Stay!" on June 30, 2015, CMS issued the much-anticipated "Summary Report on Transitional Reinsurance Payments and Permanent Risk Adjustment Transfers for the 2014 Payment Year." At 48 pages, it is certainly lighter reading than, say, the Final Notice or the recent Medicaid draft rule proposal, but packs just as much of a punch to the industry as do those documents.

According to CMS, the report details the total estimated reinsurance payments by issuer and also provides summary level information on the program. The report also includes issuers' risk adjustment charge or payment information. In fact, after extensive analysis CMS determined that the number of eligible high cost claim expenses were lower than expected for 2014. Because of these lower than expected claims, CMS recently announced that instead of paying 80 percent of eligible high cost claim expenses (that is, expenses between $45,000 and $250,000), all eligible claim expenses for the 2014 benefit year would be paid at 100 percent. CMS reports that for the 2014 benefit year, over $7.9 billion in reinsurance payments will be made to 437 issuers nationwide, out of 484 eligible plans. For risk transfers, 758 plans were included as eligible in the risk adjustment transfer program. Additionally, the report includes an early assessment of the risk adjustment program that shows the program is working as intended by compensating issuers who enrolled higher risk individuals, helping protect against adverse selection within a market. Issuers will use the reinsurance and risk adjustment amounts to calculate their risk corridor payments and medical loss ratio rebates.

Even for those reading this report with little familiarity with what risk adjustment and reinsurance mean, the report made it clear that there were winners and losers with regard to who received payments and who was required to make payments. Many plans, including some of the nation's larger insurers, most assuredly did not receive what was expected. According to the report, 99.7 percent of issuers who established EDGE servers for the collection and transmission submitted the required data, which included medical claims containing the critical diagnosis information that is the key driver for

the risk score and resulting payment. Undoubtedly, plans are busily analyzing the data, and evaluating impacts to their risk adjustment programs.

Questions plans may face include: Will they need to adjust premiums before the deadline in August? Will they need to file administrative appeals to CMS because they feel the numbers are inaccurate? Were average risk scores higher than average reinsurance payments, and why?

Plans that are facing the reality of lower than expected risk adjustment or reinsurance payments have a lot of work to do in order to determine the root cause for the discrepancies, and one area that certainly will bear scrutiny is data quality. Some of the questions that will be asked include:

Was any data not submitted because it had missing or erroneous elements that prevented it from being accepted on the EDGE servers, meaning that it could not pass EDGE server validation edits?

Was any of this data impactful to risk scores or reinsurance had it been accepted?

If so, these gaps must be closed, which may require provider engagement, particularly if it is found after root cause analysis that the provider is sending bad data that is accepted into the source system.

The true illness burden of the health plan may not be accurately reflected if the data is not there to support it, and lower payments may result. Were chart reviews performed to determine if providers were documenting and sending all diagnosis codes? Were any diagnosis codes uncovered during these reviews matched to an accepted claim and submitted to the EDGE servers, including stem diagnosis codes?

If not, retrospective chart review needs to be more optimally integrated into the revenue integrity platform, and provider engagement many be necessary to improve the quality of coding and documentation.

For benefit year 2015, 77 new plans have joined the exchanges, and with the King v. Burwell decision and other recent legislation, there is likely to be additional Medicaid expansion as well as additional entrants into the market with competitive plan designs. It is important to note that risk adjustment does not only apply to just to Marketplace-participating plans, but it also applies to plans operating Medicare Advantage plans and in Medicaid managed care plans operating in states that risk adjust.

It is also worthwhile to note that what resonated through CMS' messaging is that the program is operating as expected as evidenced by the numbers in this report, and it is therefore unlikely that the risk adjustment and reinsurance programs will undergo any significant changes in the upcoming payment year. In other words, had there been unexpected trends in payments/losses calculations, there may have been mention in the Summary Report of the need to examine the methodologies and conduct further analysis to determine the root cause of the unexpected results, and course correct if necessary. This is consistent with the messaging relayed during their weekly webinars and informational sessions.

Management of revenue integrity operations across multiple lines of business encompassing millions of members can be challenging with the fast pace of change in regulations that affect plan operations for government and commercial programs. The additional challenges of the shift from volume to value and ICD-10 also threaten to derail even the most carefully constructed risk adjustment and revenue integrity programs.

Dawn Carter is the director of product analysis at Edifecs.

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Results are in: Reinsurance and risk adjustment
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