Expert: Risk-corridor program has its strengths, weaknesses for insurers

The Patient Protection and Affordable Care Act is something of a double-edged sword when it comes to its implementation, particularly as it relates to insurers that have to abide by its tenets, according to a senior member of one of the country’s largest professional associations.

In Congressional testimony submitted on Feb. 4, Cori Uccello, senior health fellow for the American Academy of Actuaries, indicated that the risk-corridor program has its costs and benefits. For example, even though insurers would be compensated if their losses reached a certain predetermined benchmark, at the same time, they would also have to make a payment if their gains went above a specified threshold as well.

“Risk corridors are used to mitigate the pricing risk that insurers face when their data on health spending for potential enrollees are limited,” said Uccello. “The temporary risk-corridor program reduces losses to insurers that underestimate plan costs and reduces gains for insurers that overestimate plan costs.”

Insurers may pay government billions
Information obtained by the American Academy of Actuaries found that based on estimates performed by the Congressional Budget Office, the risk-corridor program could result in net payments from insurers to the government of approximately $8 billion between 2015 and 2017.

Uccello also noted that there’s the chance insurers could wind up paying the government instead of the other way around, because of how the risk-sharing program is set up.

“If actual claims are within 3 percent of expected, insurers either keep the gains or bear the losses,” said Uccello. “If actual claims exceed expected claims by more than 3 percent, the federal government reimburses the insurer for 50 percent of the losses between 3 and 8 percent, and 80 percent of the losses exceeding 8 percent.”

He added that should actual claims come in below 3 percent, the insurer would wind up having to surrender 50 percent of the revenue made between 3 and 8 percent, and as much as 80 percent for gains that were above 8 percent.

Ultimately, the risk-sharing program will have an effect on insurers’ data governance, which insurers implement in order to harness vast amounts of data that’s collected. Otherwise known as big data – or a mass amount of information that’s digitally stored – this information is crucial in order for insurers to remain competitive.

According to a recent poll, 82 percent of respondents in the insurer profession indicated that providers that don’t “capture the potential” of big data will not be able to compete with other companies, reported. Additionally, nine in 10 said that real-time claims data would help them price risk more accurately.

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