You may have heard what happened at a recent town hall meeting about the Affordable Care Act (ACA) in Tennessee. A woman stood up and said, “As a Christian, my whole philosophy in life is to pull up the unfortunate,” adding, “So the individual mandate, that’s what it does: The healthy people pull up the sick.” The comment quickly went viral, racking up thousands of views on social media.
This Tennessee woman’s impassioned statement is exactly why risk adjustment (RA) is important to the ACA. Under the ACA, healthy people can only pull up the sicker ones with robust, efficient risk adjustment processes.
Greater access to healthcare through the ACA is powered by risk adjustment
Before the ACA, people with pre-existing conditions and serious illnesses often found it difficult-to-impossible to get healthcare coverage. The ACA changed this by requiring that insurers offer policies on the newly-developed individual health insurance markets (the “exchanges”) to anyone, regardless of pre-existing conditions.
Known as a “guaranteed-issue” requirement, this posed a challenge for insurers and their bottom line; what would happen if one insurer disproportionately attracted very sick patients, endangering their sustainability and thus participation in the exchanges?
This is where RA comes in. We’ve discussed this in a previous blog post, breaking it down like this: Through RA, health insurers would submit risk scores for each enrolled patient to Health and Human Services (HHS), which in turn calculates an average risk score for each plan, mandating cash transfers from healthier plans to sicker plans.
The exchange is structured so that insurers that welcome all new enrollees and get sicker-than-average people will receive compensation from HHS for accommodating this additional risk. The department collects funds from insurers who enroll more low-cost, healthy people, redistributing said funds to insurers who enroll more high-cost people. In some cases, as it would be under capitation payment models, a provider group’s remuneration is based on average expected health care utilization, or risk, of the patient. Additional risk-adjustment funds would then trickle down from insurers to physician groups.
Just like this, risk adjustment in the healthcare exchanges enables insurers to functionally participate and cover the lives the need it most. Risk adjustment really does go right to the core of the exchange, and ACA.
An impact that matters day-to-day for millions of Americans
In “Why You Should Care About Risk Adjustment”, we looked at how a circa-2004 risk adjustment formula has helped keep Medicare Advantage sustainable and level the playing field among insurers, allowing them to undertake greater risk.
This underscores the absolutely critical role that accurate and efficient RA can play in keeping an insurer’s participation in an exchange viable. Volatility in the exchange can directly affect millions of American struggling to manage health-care costs.
See, the personal cost of healthcare is a serious matter. The financial advice company NerdWallet, took a look at Ernst & Young’s analysis of third-party debt collection and found that healthcare-related debt eclipsed student debt in percentage of personal debt collection, Additionally, healthcare-related debt was the number one cause of personal bankruptcy. That’s heavy stuff.
In fact, according to 2017 Consumer Financial Protection Bureau report, medical debts contribute to a stunning 59% of debt collections actions in the United States. studies have found that medical debt contributes somewhere between 17% to 54% of all personal bankruptcies in the United States.
The bottom line
Access to insurance through the ACA isn’t a magic bullet for out-of-control medical costs, but if insurance companies do continue to exit exchanges, making the ACA or its successor less viable, it is bad news for Americans struggling with medical debt.
It’s still wait-and-see on how the ACA reform and repeal will finally play out in Washington, and how the wallets and savings of Americans are impacted. In the meantime, let’s remember the role the risk adjustment industry plays in helping keep our critical insurance markets viable.