A Few Bureaucratic Tweaks Won't Fix Obamacare's Deeper Problems
Centers for Medicare and Medicaid Services proposed changes to the law's risk adjustment formula in effort to calm frustrated insurers.
On Monday, the Centers for Medicare and Medicaid Services (CMS)—the bureaucratic entity responsible for drawing up many of Obamacare's thousands of pages of regulations—released its latest proposed rules for the law. The new rules are being flagged as a kind of rescue effort intended to bolster the law's exchanges, which are struggling to remain attractive to health insurance companies, but they represent more of the kind of bureaucratic fiddling that is unlikely to have a major impact on the law.
The 294 page rule, oh-so-excitingly billed as the Notice of Benefit and Payment Parameters for 2018, covers a lot of ground, but the headline news were the proposed changes to the law's risk adjustment system. For those who don't speak health wonk, Obamacare's risk adjustment provision is one of the three main mechanisms that the law uses to distribute risk amongst participating insurers, ensuring that no insurer fails under the weight of an unusually sick and expensive customer base. Basically, it requires insurers who end up with an especially healthy group of patients to pay into a system that makes payments out to insurers that end up with unusually sick patients. As a Kaiser Family Foundation report from last month explained, the goal "is to encourage insurers to compete based on the value and efficiency of their plans rather than by attracting healthier enrollees."
The proposed new rules would factor in data about prescription drug usage, and would also attempt to account for beneficiaries who only enroll for part of the year. Essentially, the goal of the changes is to mitigate the high cost of very sick individuals who rely on expensive drugs and people who are gaming the system by paying for insurance only when they need it.
There are reasons to be concerned about the specifics of the rules, in particular the prescription drug changes, which some experts worry might result in doctors writing additional unnecessary prescriptions in order to get the coding right—remember, in order for the formula's payments to be made, all of this information has to be tracked—which could further increase overall spending on health care.
Narrow unintended consequences aside, the bigger picture here is that this is an acknowledgement by the federal government of the problems with the exchanges. Insurers have been dropping out of Obamacare's exchanges, dramatically raising premiums, and implying that they might pull out of even more of the health law marketplaces if their premium hikes are blocked. The reason why insurers have been hiking premiums and leaving the exchanges is that the beneficiaries have turned out to be sicker than expected, and, despite the health law's individual mandate, many seem to be gaming the system by buying insurance only when they need it.
The newly proposed rules are CMS's way of saying to insurers that they have heard their complaints and are trying to respond. The somewhat timing for the release of the rules is part of the message: Typically, the risk adjustment rules have been released much later in the year. But with Aetna and other carriers making significant moves to scale back their exchange business, CMS took the somewhat unusual step of releasing the proposal now, presumably in hopes of calming insurers. You can think of this as a kind of customer appreciation program for upset clients.
The new rules may quell some of the grumbling from insurers, some of whom have complained about the risk adjustment provisions for a while. (The alterations were previewed at a conference on risk adjustment earlier in this year.) But I wouldn't count on them having too much of an impact. The risk adjustment program moves money around, but is required, in the end, to maintain budget neutrality. What that means is that it can't fix the essential problem that insurers operating in Obamacare's exchanges are having, which is that there is not enough revenue coming in from premiums to pay for the claims being made by customers. The problem isn't the particular rules by which Obamacare's exchanges operates; it's the health mix and number of customers inside the exchanges.
The new rules, then, are best viewed as small tweaks designed to let insurers know that the federal government still cares about their business. But Obamacare's problems are big enough that they're unlikely to be solved by tweaks.