Obamacare and the 3Rs: When Healthy Becomes Unprofitable
Obamacare creates a new profile of insured. Consumers can no longer be denied because of a pre-existing condition, and having coverage is mandated by law. Before the Affordable Care Act kicked in, insurance companies managed risk by having a healthier pool of members. Since this can no longer be controlled, Milliman — an actuarial company — set out to understand the affect this change has on insurers.
The report explains the federal government tried to mitigate risks being introduced with the law through the 3Rs: transitional reinsurance, risk corridor programs, and risk adjustment. The last provision is permanent, giving it more weight in the report than the first two.
The Centers for Medicare and Medicare Services defined the scope of the Rs. All insurers and third party administrators participate in reinsurance. The program lasts for three years, and grants funding to issuers that incur high claims costs for enrollees. Risk corridors apply to all qualified health plans, will also last for three years; it is intended to limit losses and gains. The risk adjustment is permanent. “Non-grandfathered individual and small group market plans, inside and outside the Exchange” are part of risk adjustment programs, which takes funds from lower risk plans, moving them to higher risk.