Under the Affordable Care Act (ACA), grandfathered-in health insurance plans in the individual and small-group market, including plans offered on the marketplaces, can rate premiums based only on family size, geography, age, and smoking status. To prevent plans from profiting by distorting benefits to avoid enrolling higher-cost individuals (a process known as adverse selection), the ACA established a permanent risk-adjustment program that transfers funds from plans with enrollees who have lower-than-expected health risks to plans with enrollees having higher-than-expected health risks.
In spite of these risk adjustments, and other ACA policies designed to prevent adverse selection, incentives remain for plans to use subtle and difficult-to-regulate mechanisms to distort their benefit offerings and attract patients with better risk profiles, according to a new study
by Harvard Medical School researchers in the June 2016 issue of Health Affairs.
Ellen Montz, a PhD candidate in the Department of Health Care Policy at Harvard, and colleagues wrote that adverse selection occurs when insurers design their healthcare services and provider networks to attract more profitable enrollees. For example, plans can work around regulations by creating provider networks and drug formularies favoring or disfavoring certain conditions.
The researchers created a simulation of the ACA’s risk-adjustment program and applied it to a study population that reflects actual marketplace enrollees in order to analyze the cost consequences for plans enrolling people with mental health and substance use disorders. Using data from the 2012-2013 Truven Health Analytics MarketScan Commercial Clams and Encounters Database (an updated version of the 2010 MarketScan database used by HHS to develop the ACA marketplace risk-adjustment model), a study sample of 2,021,800 adults between the ages of 21 and 64 was selected to identify people with characteristics that would make them eligible for the marketplace. Risk scores were calculated for each individual in the sample using publicly available software for the marketplace model, which included 9 categories related to mental health and substance use disorders.
The researchers found that the existing Marketplace risk-adjustment models recognized and made incremental payment for only 20% of people with a mental health and substance use disorder diagnosis in 2013. The remaining 80% of individuals with mental health and substance use diagnoses were not recognized by the Marketplace risk-adjustment model.
“These findings imply that individuals with mental health and substance use diagnoses are unattractive to plans, thereby providing health plans with incentives to limit their selection into the plan,” the authors concluded.
The study’s findings add to concerns about health plans’ incentives not to comply with their legal obligation under the law to provide mental health benefits on par with medical and surgical benefits. One potential step that could be taken to ameliorate this problem, the authors wrote, is the incorporation of diagnosis codes in the Medicare Part D risk adjustment model. Future research should be conducted to examine how the incorporation of prescription drugs in risk adjustment can reduce incentives for service-level selection by health plans.