Even after the affirmative SCOTUS ruling on the constitutionality of the individual mandate “tax”, the top concern of insurers that will participate in state-based exchanges continues to be adverse selection. In 2014, insurers will be required to accept all members regardless of health status and they’re worried - 46% say adverse selection is their primary concern.

“Exchanges that do not have adequate mechanisms to balance the risk pool and effective mandates or incentives to drive individuals into the exchange could deter us from participating in the exchange,” says Bill Wehrle, Vice President of Health Insurance Exchanges at Kaiser Permanente. “Exchanges that do not have adequate mechanisms to balance the risk pool and effective mandates or incentives to drive individuals into the exchange could deter us from participating in the exchange.”

Yet, it seems hard to understand the carriers’ angst, ACA protections against adverse selection seem formidable. From 2014 through 2016, the Affordable Care Act (ACA) establishes a risk adjustment process and two other risk management programs: reinsurance and risk corridor, while the market adjusts to the shift in members and substantiates the risk adjustment process.

• Risk adjustment - At its simplest level, an exchange will charge a fee to health insurers whose members have lower than average risk scores (including enrollees in all plans inside and outside the exchange). Those fees would be paid to health insurers whose members have above average risk scores.
• Reinsurance - Health insurers (including third party administrators on behalf of self-insured plans) will collectively pay $25 billion over the three-year period for reinsurance. States may collect more to cover the administrative costs. Insurers with high-risk individuals and/or large claim expenses will receive payments from the reinsurance entity based on a of high risk conditions.
• Risk corridor- This will be based on the Medicare Part D risk corridor and is similar to the risk adjustment. Health insurers with costs (minus administrative costs) of less than 97% will be assessed a fee, and those with costs that exceed 103% will receive extra payments.