The ACA’s Risk-Adjustment Program Needs Adjusting

July 27, 2020 stgblase

By Brian Blase

Abstract

The Affordable Care Act (ACA) radically changed insurance
regulation in the individual and small-group health insurance
markets, leading to a separation of premiums from expected
medical claims. The ACA included a risk-adjustment program
designed to ensure the availability of plans for less-healthy
people and discourage plans from prioritizing enrollment
of healthier people. Risk adjustment was intended to make
insurers indifferent to the health status and plan selection of
their enrollees by transferring money from plans with healthier
enrollees to plans with sicker enrollees. Risk adjustment is not
working as intended, however, causing a myriad of problems
that have reduced competition, increased average premiums
and, perhaps most importantly, reduced the incentive for
plans to enroll healthy people because of excessive transfers.
Many reforms are needed to create a more robust individual
and small-group health insurance market that offers greater
competition and more affordable options. Fixing the problems
with the ACA’s flawed risk-adjustment program is an important
start.

Full paper

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