More on Reimbursement

Insurers miss out on $2.5 billion in risk corridor payments, HHS says

Insurers will be paid approximately 12.6 percent of their risk corridors payment requests

Susan Morse, Managing Editor

Insurance companies will pay $362 million to the federal government's shared risk program beginning this November for 2014 participation, but will be short $2.5 billion in payments that they hoped to receive from the federal government, the Department of Health and Human Services announced on Thursday.

Instead, insurers will be paid approximately 12.6 percent of their risk corridors payment requests, HHS said.

The risk corridors program was established to encourage payers to keep their rates stable as they adjusted to health insurance reform under the Affordable Care Act, HHS said

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[Also: CMS delays risk corridor credits for health exchange insurers over bad data]

The temporary risk corridors program provides payments to insurance companies depending on how closely the premiums they charge cover their consumers' medical costs.

Issuers whose premiums exceed claims and other costs by more than a certain amount pay into the program; insurers whose claims exceed premiums by a certain amount receive payments for the shortfall.

"We recognize that for a limited number of insurers, a lower than expected 2014 risk corridor payment may raise concerns," the Centers for Medicare and Medicaid Services stated in an Oct. 1 release. "We will be in close contact with those states and insurers in the coming days. We are beginning that outreach this afternoon and will continue to be available."

Risk corridors data for 2014 was originally expected to be announced in August. However, CMS said the data received required additional review. Just over half of all plans resubmitted their data during a validation process.

In the event of a shortfall for the 2016 program year, CMS said it would explore other sources of funding for risk corridors payments, including working with Congress for the necessary funding.

The temporary risk corridors program is modeled after a similar program used in the Medicare Part D Prescription Drug benefit.

It is among three programs established by the Affordable Care Act that recognize the uncertainty faced by insurance companies in setting premiums for a new group of people while implementing a higher standard of coverage – for example, no longer being able to deny coverage or charge more because of someone's pre-existing conditions.

The other two programs are risk adjustment and reinsurance.

The reinsurance program keep premiums affordable for consumers by spreading the cost of very large insurance claims across all coverage providers. The federal government will be paying $7.9 billion in reinsurance claims for 2014, the Centers for Medicare and Medicaid announced Thursday.

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Because claims were not as high as expected, health insurance plans are being paid for 100 percent of their filed claims: 25 percent more than plans were expecting.

The risk adjustment program protects consumers' access to a range of coverage options by reducing the incentive for insurance companies to seek only to insure healthy individuals.

The program requires insurance companies with healthier consumers in a state to pay charges that help offset some of the costs of those insurance companies with sicker consumers.

For 2014, the risk adjustment program will transfer about $4.6 billion among insurance companies nationwide, CMS said in the Oct. 1 release.

Unlike reinsurance, the risk adjustment program is not temporary and will be a long-lasting part of how the health insurance market functions, CMS stated.

Twitter: @SusanJMorse