Sec. 361.9. Market stabilization pools for the small group health insurance market for the 2017 plan year

(a)

(1) The superintendent has been assessing the Federal Risk Adjustment Program developed under the Federal Affordable Care Act and its impact on the health insurance market in this State. In its simplest terms, the Federal Risk Adjustment Program requires that carriers whose insureds or members have relatively better loss experience pay into the risk adjustment pool and those with relatively worse experience receive payment from that pool. The broad purpose of the risk adjustment program is to balance out the experience of all carriers.

(2) In certain respects, however, the calculations for the Federal Risk Adjustment Program do not take into account certain factors, resulting in unintended consequences. The department has been working cooperatively with the Department of Health and Human Services and the Centers for Medicare and Medicaid Services (CMS) on risk adjustment. Recently, CMS has announced certain changes to the methodology. CMS has also stated that it will continue to review the methodology in the future.

(3) The Federal Risk Adjustment Program has led to a situation in which some carriers in this State are receiving large payments out of the risk adjustment program that are paid by other carriers. For many of these other carriers, the millions to be paid represent a significant portion of their revenue. The money transfers among carriers in this State under the Federal Risk Adjustment Program have been among the largest in the nation.

(4) CMS’s changes and planned reviews are much appreciated and anticipated. The superintendent will continue to work with CMS and hopes that over time the Federal Risk Adjustment Program will be improved so that it fully meets its intended purposes. The Federal risk adjustment methodology as applied in this State does not yet adequately address the impact of administrative costs and profit of the carriers and how this State counts children in certain calculations. These two factors are identifiable, quantifiable and remediable for the 2017 plan year.

(5) This section applies only to risk adjustment experience in the small group health insurance market for the 2017 plan year to be applied to payments and receipts in 2018. The department will continue its review of the Federal Risk Adjustment Program and its impact on the individual and small group health insurance markets in this State. Among other issues, the department will continue to examine whether Federal risk adjustment adequately accounts for demographic regional diversity in this State, as well as whether Federal risk adjustment dissuades carriers from using networks and plan designs that seek to integrate care and deliver value. The superintendent will take all necessary and appropriate action to address the impact on both markets in the future.

(b)

(1) The superintendent anticipates that the Federal Risk Adjustment Program will adversely impact the small group health insurance market in this State in 2017 to such a degree as to require a remedy. Several factors are expected to cause the adverse impact, including:

(i) the Federal Risk Adjustment Program results in inflated risk scores and payment transfers in this State because the calculation is based in part upon a medical loss ratio computation that includes administrative expenses, profits and claims rather than only using claims; and

(ii) the Federal Risk Adjustment Program results in inflated risk scores and payment transfers in this State because the program does not appropriately address this State’s rating tier structure. For this State, the Federal Risk Adjustment Program alters the definition of billable member months to include a maximum of one child per contract in the billable member month count. This understatement of billable member month counts:

(a) lowers the denominator of the calculation used to determine the statewide average premium and plan liability risk scores;

(b) results in the artificial inflation of both the statewide average premium and plan liability risk scores; and

(c) further results in inflated payments transfers through the Federal Risk Adjustment Program.

(2) Accordingly, if, for the 2017 plan year, the superintendent determines that the Federal Risk Adjustment Program has adversely impacted the small group health insurance market in the State and that amelioration is necessary, the superintendent shall implement a market stabilization pool for carriers participating in the small group health insurance market, other than for Medicare supplement insurance, pursuant to subdivision (e) of this section to ameliorate the disproportionate impact that the Federal Risk Adjustment Program may have on carriers, to address the unique aspects of the small group health insurance market in this State, and to prevent unnecessary instability for carriers participating in the small group health insurance market in this State, other than for Medicare supplement insurance.

(c) As used in this section, small group health insurance market means all policies and contracts providing hospital, medical or surgical expense insurance, other than Medicare supplement insurance, covering 1 to 100 employees.

(d) Following the annual release of the Federal risk adjustment results for the 2017 plan year, the superintendent shall review the impact of the Federal Risk Adjustment Program established pursuant to 42 U.S.C. section 18063 on the small group health insurance market in this State for that plan year.

(e) If, after reviewing the impact of the Federal Risk Adjustment Program on the small group health insurance market in this State for the 2017 plan year, including payment transfers, the statewide average premiums, and the ratio of claims to premiums, the superintendent determines that a market stabilization mechanism is a necessary amelioration, the superintendent shall implement a market stabilization pool in such market as follows:

(1) every carrier in the small group health insurance market that is designated as a receiver of a payment transfer from the Federal Risk Adjustment Program shall remit to the superintendent an amount equal to a uniform percentage of that payment transfer for the market stabilization pool. The uniform percentage shall be calculated as the percentage necessary to correct any one or more of the adverse market impact factors specified in paragraph (b)(1) of this section. The uniform percentage shall be determined by the superintendent based on reasonable actuarial assumptions and shall not exceed 30 percent of the amount to be received from the Federal Risk Adjustment Program:

(i) the superintendent shall send a billing invoice to each carrier required to make a payment into the market stabilization pool after the federal risk adjustment results are released pursuant to 45 CFR section 153.310(e);

(ii) each carrier shall remit its payment to the superintendent within 10 business days of the later of its receipt of the invoice from the superintendent or receipt of its risk adjustment payment from the Secretary of the United States Department of Health and Human Services pursuant to 42 U.S.C. section 18063; and

(iii) payments remitted by a carrier after the due date shall include the amount due plus compound interest at the rate of one percent per month, or portion thereof, beyond the date the payment was due; and

(2) for the 2017 plan year:

(i) every carrier in the small group health insurance market that is designated as a payor of a payment transfer into the Federal Risk Adjustment Program shall receive from the superintendent an amount equal to the uniform percentage of that payment transfer, referenced in paragraph (1) of this subdivision, from the market stabilization pool;

(ii) the superintendent shall send notification to each carrier of the amount the carrier will receive as a distribution from the market stabilization pool after the federal risk adjustment results are released; and

(iii) the superintendent shall make a distribution to each carrier after receiving all payments from payors. However, nothing in this section shall preclude the superintendent from making a distribution prior to receiving all payments from payors.

(f) The superintendent may modify the amounts determined in subdivision (e) of this section to reflect any adjustments resulting from audits required under 45 CFR section 153.630.

(g) In the event the payments received by the superintendent pursuant to paragraph (e)(1) of this section are less than the amounts payable pursuant to paragraph (e)(2) of this section, the amount payable to each carrier pursuant to this section shall be reduced proportionally to match the funds available in the pool.