September 9, 2016
Contact: Richard Loconte, 212-709-1691
DFS ISSUES EMERGENCY REGULATION TO ADDRESS NEW YORK FACTORS NECESSARY TO REMEDY ADVERSE IMPACT OF FEDERAL RISK ADJUSTMENT PROGRAM ON NEW YORK HEALTH INSURERS
The new regulation provides DFS authority to create a market stabilization pool for the small group health insurance market for the 2017 plan year.
Financial Services Superintendent Maria T. Vullo today announced that the Department of Financial Services (DFS) has promulgated an emergency regulation to address factors that are not addressed in the federal risk adjustment program administered by the Centers for Medicare & Medicaid Services (CMS) in the small group health insurance market. The new regulation follows a June 28, 2016 letter to Health and Human Services Secretary Sylvia Burwell in which Superintendent Vullo expressed concern that the CMS risk adjustment program has created inappropriately disparate impacts and unintended consequences among health insurers in New York.
“The Affordable Care Act (ACA) has helped nearly one million New Yorkers who had previously been uninsured to secure the health insurance coverage they need, while also increasing the affordability and accessibility of health insurance coverage for millions more,” said Superintendent Vullo. “In order to support the continued success of the ACA and New York’s vibrant market, DFS is taking appropriate action to rectify certain unintended consequences of the federal risk adjustment program and correct the current imbalance due to issues that are not accounted for in the federal program. DFS looks forward to continuing to work with CMS to strengthen the health insurance market, increase competition, and allow consumers to have even better, lower cost options for health insurance coverage in New York and the nation.”
The highly complex risk adjustment program is intended to result in financial transfers among insurers to account for the health of the insured populations. The transfers are supposed to even out the claims experience of insurers so that insurers with relatively less healthy members can compete with those with relatively healthier members. In New York, the program has resulted in transfers by insurers of upwards of 30% of premium to other insurers. These transfers are due to some factors that are not necessarily related to the relative health of each insurer’s members. In particular, the risk adjustment program’s calculations include administrative expenses and profits rather than only using claims. In addition, the risk adjustment computations may not give appropriate consideration to the way in which New York’s tiered rating structure counts a member’s children.
Under the new regulation, after CMS makes its 2017 risk adjustment program calculations, DFS will determine if the CMS calculations will have an adverse impact on New York’s small group health insurance marketplace. If there is an adverse impact, the Superintendent will implement a “market stabilization pool” taking into account certain factors relevant to the New York market. Utilizing these additional factors, insurers who received money from the risk adjustment program will pay an allocable percentage of that money into a fund administered by DFS. DFS will then transfer that money to those insurers who paid into the risk adjustment program and were adversely impacted. The amount of money paid into the pool will be based on DFS’s estimate of the amount of the imbalance, which shall not exceed 30% of the total amount that an insurer received from the risk adjustment program.
The emergency regulation, once published, applies only to risk adjustment experience in the small group market for the 2017 plan year. DFS will continue its review of the federal risk adjustment program and its impact on both the individual and small group markets and work with all stakeholders, including CMS and insurers, to consider any appropriate future action.