Covered California Plans Have Stabilized Risk Scores, Premiums

Covered California has been able to sign up a diverse population of consumers, resulting in stabilized risk scores among enrollees and across health plans, according to a Health Affairs blog post.

The blog post was written by:

• Zachary Goldman, a senior policy specialist at Covered California;
• John Bertko, chief actuary of Covered California; and
• Jim Watkins, director of RASD and directs analytic work for Medi-Cal for the California Department of Health Care Services (Goldman et al., Health Affairs Blog, 10/26).

Background

Under the Affordable Care Act, the risk corridors provision permits federal payments to health insurers to help offset the costs they might incur by enrolling a higher-than-expected number of sick people through the insurance exchanges.

The program, which will end after 2016, is meant to help insurers in the early years of establishing premium rates for individual and small-group insurance markets under the ACA. If insurers lose money on exchange plans above an expected limit, HHS will reimburse a designated amount of their losses. However, companies with better-than-expected medical expenses will have to return some money to the government (California Healthline, 8/11).

According to the Health Affairs blog post, insurers in many states did not accurately project premium rates at levels to account for the risk of newly insured individuals.

As a result, many insurers are receiving lower-than-expected risk corridors payments for 2014 because payments made into the risk-corridor fund were insufficient to cover reimbursements for certain plans.

Details of Covered Calif. Risk Scores

To determine risk scores for Covered California enrollees, the researchers combined data from the:

• Exchange's enrollment system as of May 2014 and April 2015 on enrollees' age and sex; and
• The California Office of Statewide Health Planning and Development's 2013 emergency department and inpatient discharge datasets on individual-level diagnoses.

For most individuals who were not hospitalized or had not visited the ED in 2013, risk scores were determined using just their age and sex.

Unlike most states, the analysis found that risk scores in California largely have started to stabilize.

Specifically, enrollment among all insurers on the exchange has moved toward the state's average risk score, meaning no plans appear to be attracting mostly "good risks" or mostly "high-risk" individuals. In addition, the analysis found that enrollees had less severe conditions in 2015, compared with 2014.

According to the blog post, such trends are key to the stability of Covered California and its premiums. The analysis noted that all Covered California insurers used risk scores and claims data to set lower-than-expected 2016 premium rates, averaging an increase of just 4% next year.

Potential Explanations

California's success in stabilizing risk scores and premiums could stem from its embrace of the ACA's available tools, according to the blog post.

For instance, Covered California chose to:

• Adopt the ability to select health plans with the highest value;
• Negotiate premiums with insurers;
• Require all participating insurers to transition their plans to comply with ACA requirements; and
• Standardize all plans' health benefits to generate competition on price, provider networks and quality.

According to the blog post, other states could follow California's lead and use the state's efforts as a model (Health Affairs, 10/26).