Centers for Medicare & Medicaid Services ("CMS") is seeking public feedback on its white paper released today addressing the risk adjustment models, payment, transfer, formula and methodology applicable to health insurance issuers in the individual and small employer group marketplace.

The Affordable Care Act ("ACA") established a permanent risk adjustment program to minimize the negative effect of adverse selection and to help level the playing field between insurance companies writing in the small and individual employer markets. These marketplaces are particularly regulated under the ACA to ensure that the public can purchase private health insurance that encourages competition on both quality and value. Leveling the playing field is intended to foster a stable marketplace where issuers are awarded for providing high quality, affordable coverage, not for offering plans designed to attract the healthy and avoid the sick.

The risk adjustment program maintains market stability by: (i) mitigating the effect of risk selection of premiums; and (ii) transferring premium revenue from plans with below-average actuarial risks to plans with above-average actuarial risk. The risk transfer mechanism is viewed as an essential component of the insurance market reforms implemented by the ACA.

ACA market reforms include:

  • Guaranteed issue/renewal
  • Adjusted community rating
  • Single risk pool

These market reforms ensure that a health plan that enrolls individuals in poor health would not be able to charge a higher premium than an otherwise identical health plan that enrolls healthier individuals. In the absence of a risk adjustment mechanism, a health plan could gain a competitive advantage if it enrolled the healthy and avoided the sick and hence, would be incentivized to do so. The goal of the ACA market reforms and its risk adjustment program is to stabilize the market so that health plan premiums reflect the value of the coverage offered, including product features, such as efficient care delivery and not risk selection.

The purpose of the risk adjustment white paper is to respond to comments received by the U.S. Department of Health and Human Services / CMS and to provide feedback on the risk adjustment methodology based upon initial implementation of the program for the 2014 benefits year. This commentary suggested that the risk adjustment model should: (i) include prescription drugs as predictors of diagnoses or severity of illness; (ii) the model should better account for partial year enrollment; and (iii) the model should be recalibrated on the individual and small group populations rather than a separate commercial data set. The white paper evaluates these concerns.

To submit comments, a commenter must register as a Registration for Technical Assistance Portal (REGTAP) user. Comments may be submitted through or REGTAP at by April 22, 2016.


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