February 01, 2016

Mike Adelberg to Washington Post: ACA Risk Adjustment Produces Some Surprising Results

Last summer, Viva Health, a small, Alabama-based nonprofit health maintenance organization (HMO), received an unexpected bill for $1.7 million from the federal government. The bill stemmed from the Affordable Care Act’s (ACA) risk adjustment program, which the Washington Post said is designed to “keep insurance markets stable by sharing the ‘risk’ of sicker people and removing any incentive for plans to avoid individuals who need more medical care.” As envisioned, health plans that take on sicker people receive additional funds; those with healthier members pay into the program.

However, the fund transfers between health insurers are influenced by the skill with which each health plan collects and submits diagnosis codes to the government. Mike Adelberg, senior director for FaegreBD Consulting, told the Post that ACA risk adjustment is a zero-sum activity that may have moved funds based on the administrative competencies of different health insurers as much as the actual risk of their members. Overall, the funds transfers may have hurt smaller and newer health carriers that lack the resources and sophistication to collect all of the right data.

As a result, small carriers like Viva Health ended up with surprise bills. “Risk adjustment is a dark art,” Adelberg said. “Some carriers brought only a knife to a gunfight.”  

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