Doniella-Pliss A.M. Best

In highlights from a recent edition of A.M. Best’s First Monday series, Senior Financial Analyst Doniella Pliss discusses the risk-sharing provisions of the Patient Protection and Affordable Care Act (ACA).

According to Ms. Pliss, there are three risk stabilization programs for the ACA: Risk Corridor, Reinsurance and Risk Adjustment. “The goal of the Risk Corridors program was to protect the insurer from the uncertainty when pricing for the new risk pool.” The government reimburses the insurers if they incur losses due to high claims costs.

The Center for Medicare Services (CMS) funded the Risk Corridor program by collecting funds from companies who had low Risk Corridor costs and redistributed them to companies with high Risk Corridor Costs. “This smoothed out the overall results”, says Ms. Pliss.

It is possible that the CMS could owe more to companies with higher Risk Corridor costs than they collect.  In this situation said Ms. Pliss, “there won’t be enough funds to pay for Risk Corridors.”  In 2014, the Budget Act prohibited the CMS from using taxpayers funds to pay for Risk Corridors should there be a budget shortfall.

“The majority of insurers followed the rules and admitted their Risk Corridor receivables…They were in no position to pass on this payment…the amount of Risk Corridor receivable was significant compared to their capital and surplus, and if they didn’t record this receivable, their financials would look very weak. “

Ms. Pliss says Congressional Budget Office estimates “the average cost per enrollee will be 5.6% per year for the next ten years, which is significantly lower than the previous analysis; however the CBO shows that over the same time, premiums will increase, outpacing costs.”  Insurers will be raising prices to take into consideration the phase of risk stabilization programs in 2017.

We’d like to thank A.M. Best for their contribution to our program.  If you’d like to see more of the First Monday Series, visit the A.M. Best website.

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