Question: The insurance companies do not have any history with the exchange and are probably guessing the risk-profile of the customers. I understand that there is some mechanism built-in to make them whole if they guess wrong and lose a lot of money. (please correct me if I am wrong). My question is, if they find that they were too conservative and make too much profit — i.e. spend less than the stipulated percentage in patient care — are they still forced to give it back. Will it be refunded to the individuals, or to the government, or split equitably based on the subsidy amount.
Answer: The ACA law includes a “risk adjustment” provision that provides a behind-the-scenes mechanism to correct for market imbalances that occur if some insurers attract pools of subscribers whose expected medical costs are substantially greater or less than market-wide averages. It helps to accomplish this by subsidizing insurers that end up with a disproportionate share of high-cost patients and assessing competing insurers that — either through strategy or happenstance — end up with a better selection of health risks. Conversely, there is no mechanism to recover revenue from an insurer who does a better than average job of risk assessment. There is however and Medical Loss Ratio (MLR) regulation in the ACA that requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement. It also requires them to issue rebates to enrollees if this percentage does not meet minimum standards - at least 80% or 85% of premium dollars on medical care. If they fail to meet these standards, the insurance companies are required to provide a rebate to their customers.