CYRUS MEHRI (DC, CT)

STEVEN A. SKALET (DC, MD)

JAY ANGOFF (DC, MO, NJ)
CRAIG L. BRISKIN (DC, NY, MA)
HEIDI R. BURAKIEWICZ (DC, MD, VA)
STEPHANIE J. BRYANT (DC, PA)
PIA WINSTON (DC, MD)
ROBERT DePRIEST (DC, NY)
JOANNA WASIK (NY)
1250 CONNECTICUT AVENUE NW, SUITE 300 WASHINGTON, DC 20036
BRETT WATSON (DC, MD)
TEL 202.822.5100
FAX 202.822.4997
WWW.FINDJUSTICE.COM
AMELIA FRIEDMAN (TX)

N. JEREMI DURU (DC, MD)

MICHAEL D. LIEDER (DC)
KARLA A. GILBRIDE (DC, CA, NY)
RICHARD E. CONDIT (DC)
OF COUNSEL

Support for
Challenging Health
Insurance Rate Filings
Data on Trend, Health Status, the Individual Mandate
Penalty, Delivery System Reforms, Narrow Networks,
and the 3 Rs
Prepared October 2015

Table of Contents
Trend.................................................................................................................................................4
1. Altarum Institute Center for Sustainable Health Spending, Health Sector Trend Report: September
2015Expanded Report Covering Second Quarter of 2015 ..................................................................... 4
2. Liz Szabo, USA Today, Jaw-Dropping: Medicare deaths, hospitalizations AND costs reduce ............. 5
3. Aon Hewitt, 2011 Health Insurance Trend Driver Survey...................................................................... 5
4. Heffernan Insurance Brokers, 2014 Health Care Trend Report ............................................................ 6
5. PwC Health Research Institute, Medical Cost Trend: Behind the Numbers 2016 (June 2015) ............. 6
6. Wells Fargo Insurance, Healthcare trend projections for 2016 (April 2015) ........................................ 7
7. Alice Chen & Dana Goldman, Health Care Spending: Historical Trends and New Directions (August
2015) ......................................................................................................................................................... 8
8. Robert Wood Johnson Foundation, Drop in Health Care Spending Due to Slowdown in Rx Spending
(August 2015) ............................................................................................................................................ 8
Health Status .....................................................................................................................................9
9. American Academy of Actuaries, Drivers of 2015 Health Insurance Premium Changes (June 2014) .. 9
10. Congressional Budget Office (CBO), Updated Estimates of the Effects of the Insurance Coverage
Provisions of the Affordable Care Act, April 2014 ..................................................................................... 9
11. Society of Actuaries, Indications of Pent-up Demand, New ACA enrollee use of preference-sensitive
services (April 2015) ................................................................................................................................ 10
12. John Bertko, National Institute for Health Care Management, What to Expect for 2015 ACA
Premiums: An Actuary Opens the Black Box ........................................................................................... 10
13. Arkansas Blue Cross and Blue Shield, Part II: Reason for Requesting Rate Increase (June 10, 2014)
................................................................................................................................................................ 11
14. Julia Lerche & Ken Ehresmann, Wakely White Paper, Considerations for 2016 Health Insurance
Rate Development, Rate Filing, and Rate Review (March 2015) ............................................................ 11
15. State Health Access Data Assistance Center, The First Insurance Claim of New ACA Enrollees
(August 2015) .......................................................................................................................................... 12
16. Milliman, What now? 2015 Individual Market Pricing: Morbidity and Other Considerations
(October 2013) ........................................................................................................................................ 12
Effect of the Penalty......................................................................................................................... 13
17. Chabeli Herrera, Miami Herald, When paying the Obamacare penalty is cheaper than buying
insurance ................................................................................................................................................. 13
18. McKinsey Center for U.S. Health Reform, 2015 OEP: Insight into consumer behavior (March 2015)
................................................................................................................................................................ 14

19. Amitabh Chandra, et al., The New England Journal of Medicine, The Importance of the Individual
MandateEvidence from Massachusetts (January 2011) ..................................................................... 14
Delivery System Reform ................................................................................................................... 14
20. The Commonwealth Fund, The Affordable Care Acts Payment and Delivery System Reforms: A
Progress Report at Five Years (May 2015) .............................................................................................. 14
21. The Journal of the American Medical Association, Association of Pioneer Accountable Care
Organizations vs. Traditional Medicare Fee for Service with Spending, Utilization and Patient
Experience (June 2015) ........................................................................................................................... 15
22. Centers for Medicare and Medicaid Services (CMS), Medicare ACOs Provide Improved Care While
Slowing Cost Growth in 2014 .................................................................................................................. 16
23. Tianna Tu, et al., Leavitt Partners, The Impact of Accountable Care: Origins and Future of
Accountable Care Organizations (May 2015) ......................................................................................... 16
24. Centers for Medicare & Medicaid Services (CMS), CMS announces Value-Based Insurance Design
Model to improve care and reduce costs in Medicare Advantage Plans (September 2015) .................. 17
25. Leslie Small, Medicare Advantage plans to test value-based insurance design model (September 1,
2015) ....................................................................................................................................................... 17
26. Julie Huppert, Express Scripts, First Look: 2015 Public Exchange Plan Rx Trends ............................ 17
27. Melinda Beck, Wall Street Journal, Pioneer Model Saved Medicare Nearly $400 Million in Two
Years (May 2015) .................................................................................................................................... 18
28. Bob Herman, Modern Healthcare, What Medicares value-based insurance test could mean for
commercial plans (September 3, 2015) .................................................................................................. 18
29. David Bodycombe, Managed Care, More Data in Health Care Will Enable Predictive Modeling
Advances (February 2013) ...................................................................................................................... 19
30. Dan Mangan, CNBC, Obamacare program generates substantial Medicare savings (May 2015) . 19
Narrow Networks ............................................................................................................................ 20
31. McKinsey Center for U.S. Health Reform, Hospital networks: Evolution of the configurations on the
2015 exchanges (April 2015)................................................................................................................... 20
The 3 RsReinsurance, Risk Adjustment, and Risk Corridors ......................................................... 20
32. Sarah Ferris, The Hill, $800M left over in ObamaCare reinsurance program (June 2015) ............... 20
33. Timothy Jost, Health Affairs Blog, Implementing Health Reform: New CMS Guidance and First-Year
Results (Northern Tribe v. Burwell Update) (June 2015)......................................................................... 21
34. The Center for Consumer Information & Insurance Oversight, Proposed HHS Notice of Benefit and
Payment Parameters for 2015 ................................................................................................................ 22
35. Kaiser Family Foundation, Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk
Corridors (January 2014) ......................................................................................................................... 22

36. Anthony Brino, Fewer reinsurance needs buoy higher payments (June 2015)................................. 23
37. Americans Health Insurance Plans, Affordable Care Act Premium Stabilization Programs: How
Reinsurance, Risk Corridors, and Risk Adjustment Protect Consumers (November 2013) ..................... 23
38. Anthony Brino, Flawed data, calculations may skew states risk adjustment (January 2015) ......... 24
39. Doug Norris, et al., Risk Corridors under the Affordable Care ActA Bridge over Troubled Waters,
but the Devils in the Details (October 2013) .......................................................................................... 25
40. Jason Siegel & Jason Petroske, Milliman Healthcare Reform Briefing Paper, When adverse selection
isnt: Which members are likely to be profitable (or not) in markets regulated by the ACA (December
2013) ....................................................................................................................................................... 25
41. Doug Norris, Daniel Perlman & Hans K. Leida, Milliman Healthcare Briefing Paper, Risk Corridors
Episode IV: No New Hope (December 2014)........................................................................................... 26
42. Shyam Killi & Aaron S. Wright, Milliman Healthcare Reform Briefing Report, Risk adjustment plus
risk corridors: Offsetting impact (January 2015)..................................................................................... 26
43. Mary van der Heijde & Jordan Paulus, Milliman White Paper, Top 10 notable issues related to the
federal risk adjuster ................................................................................................................................ 27
44. American Action Forum, The ACAs Risk Spreading Mechanisms: A Primer on Reinsurance, Risk
Corridors and Risk Adjustments .............................................................................................................. 27
45. HighRoads, CMS Maximizes Reinsurance Protections (June 2014)................................................... 28

Trend
1. Altarum Institute Center for Sustainable Health Spending, Health Sector
Trend Report: September 2015Expanded Report Covering Second Quarter of
2015
The study concludes that health price growth remained very low in the second quarter of 2015,
while health services grew only a minimal amount.
Health price growth remained very low at 1.1% in Q2, with the services component growing at
a paltry 0.5%, but the latest data for August show an uptick.
[L]ow growth in health care prices . . . has not contributed to the acceleration in health
spending. This implies that the acceleration in spending is driven primarily by increased
healthcare utilization, although the reduction in uncompensated care, as more people have gained
insurance coverage,is also a contributor.
Prices for physician services in Q2 are actually 1.2% lower than they were in Q2 of last year,
caused by the discontinuation of enhanced Medicaid payments to primary care physicians. For
August 2015, the Health Care Price Index, at 1.2%, is the highest since April 2015. With regard

to hospital price growth, while still very low at 1.0%, the report found that it is the highest
since September 2014. Similarly, prescription drug price growth, which was moderating since
a historic high of 6.4% in December 2014, rose for the first time in August at 4.7%, up from
4.4% in July.
Link: http://altarum.org/sites/default/files/uploaded-publicationfiles/Altarum%20RWJF%20Trend%20Report%20September%202015.pdf

2. Liz Szabo, USA Today, Jaw-Dropping: Medicare deaths, hospitalizations AND

costs reduce
USA Today reported on July 28, 2015, that a new study in the Journal of the American Medical
Association conducted by Harlan Krumholz, a cardiologist at the Yale University School of
Medicine, found significant improvements in the last fifteen years in decreasing Medicare
deaths and the number of hospitalizations, while at the same time reducing hospital costs.
Krumholz attributes the data improvements to reforms in hospital care, reduced obesity rates,
cleaner air, and improvements in drugs for treating common health conditions.
Mortality rates among Medicare patients fell 16% from 1999 to 2013 . . . equal to more than
300,000 fewer deaths a year in 2013 than in 1999.
Among [Medicares traditional] fee-for-service patients, hospitalization rates fell 24%, with
more than 3 million fewer hospitalizations in 2013 than 1999.
Admitted patients were 45% less likely to die during their stay; 24% less likely to die within a
month of admission; and 22% less likely to die within a year.
Costs for hospitalized patients also fell by 15% among fee-for-service patients.
Link: www.usatoday.com/story/news/2015/07/27/medicare-mortality-costs-study/30757669/.

3. Aon Hewitt, 2011 Health Insurance Trend Driver Survey

A study of core health trend experiences from 2008 to 2010 revealed that smaller health care
plans experience more variability in health care trends than larger plans and that there was no
strong relationship between trend in one period and subsequent periods.
[I]t is clear from the chart that not all health plans experienced the same level of health care cost
increases. In general, smaller health plans experienced more variability in health care trends than
larger plans.
Carriers experiencing a very high or very low trend in a particular year were not substantially
more likely to experience a similarly high or low trend in a subsequent period.

Link: http://www.aon.com/attachments/thoughtleadership/2011_Health_Insurance_Trend_Driver_Survey.pdf

4. Heffernan Insurance Brokers, 2014 Health Care Trend Report

This survey of health insurance companies prepared for employers by Heffernan Benefit
Advisory Services (HIB) revealed that actual trend predictions for 2011 and 2012 were
significantly lower than the carrier trend projections for all products.
Across all products the national trend projections for 2015 are lower than both the 2014 and
2013 trend projections. For dental, the trend projection for the dental HMO was at a ten year
low in 2014, the trend projection for this product for 2015 has increased to the 2013 trend level.
The dental PPO however is projected to have the same increase as 2014. While steadily declining
in trend increases year over year, the dental indemnity products overall trend projection is 1%
lower than it was last year. In fact the trend increase for the dental Indemnity is 0.1% lower than
the trend increase for the Dental PPO. For vision, [t]he projected vision trend has significantly
decreased to 2.2%.
While projected trend estimates for 2015 remain lower than they had been at the beginning of
the decade, the increased fees and costs as well as the increased participation in employer
sponsored health plans means that employers may yet again face high renewal increases.
Link: http://www.heffins.com/sites/default/files/Benefits/Trend-Report-2014.pdf

5. PwC Health Research Institute, Medical Cost Trend: Behind the Numbers
2016 (June 2015)
Predicting that medical cost trend will be 6.5% in 2016, a slight decrease from the 6.8% in 2015,
this report identifies the deflating factors for 2016 costs as the looming Cadillac tax,
technological advancements in virtual care, and new, more efficient health advisers, while the
expected inflating factors are specialty drugs and cyber security. The report further concludes
that the ACA has not had major direct impacts on spending in the employer-based insurance
markets.
PwCs Health Research Institute (HRI) projects 2016 medical cost trend to be 6.5%--slightly
lower than the 6.8% projected for 2015 . . . .
Only 4% of employers saw a significant impact from the $2,000 penalty imposed under the
laws employer mandate.
With the Cadillac tax on the horizon, insurers and employers are under pressure to find costeffective ways to lower health spending. Insurers will offer more risk-based contracts to
providers and companies will find more ways to share costs with their employees to mitigate this
pressure.

Consumers value convenience and cost savings, and virtual care saves them time and money. . .
. As more insurers, providers and employers offer virtual options, the expected savings will help
slow the overall spending growth rate in 2016 and beyond.
The report also explains in more detail new health advisers that allow members to find out
where they stand in terms of how much they need to pay for a specific service, at a particular
setting, how much of their deductible they have used and what remains, and if there are any cash
rewards for a particular setting. The insurers further save costs, for example, with Fallon Health,
which guides members to lower-cost facilities, [e]ven though the plan pays the member $500, it
still saves money by moving away from high-cost hospitals and physician offices.
Link: http://www.pwc.com/us/en/health-industries/behind-the-numbers/behind-the-numbers2016.html

6. Wells Fargo Insurance, Healthcare trend projections for 2016 (April 2015)
Wells Fargo Insurance released the results of its 2015 Spring Healthcare Trend Survey of more
than 65 insurance companies nationwide and concluded for 2015 that [m]edical trends have
decreased the past couple of years but they remain in the high single digits, ranging from 7.2%
for HMO to 9.0% for Indemnity Fee-for-Service annually. That difference may seem
insignificant, but a difference in healthcare trends of 2.0% compounds to a 10.4% difference in
plan costs after just five years.
Wells Fargo Insurance projects for 2016 that (1) Costs trends in 2016 are expected to increase
for every product, relative to 2015, except for prescription drugs; (2) Cost trends for medical
expenses have more uncertainty than cost trends for prescription drugs; and (3) The projected
uptick in claims trend starting in 2016 appears startling, especially for HMOs, which are
projected to increase 8.6% in 2016 compared to 7.2% now; and (4) Looking more closely at
the other products, though, the cost increases are not escalating any faster than they have
decreased over the last year or two, so it seems plausible that market factors could accelerate
healthcare costs in an upward direction.
More specifically with regard to prescription drugs, in 2016 costs are projected to increase
again, but not as much as they will in 2015 in part because patents for many brand name drugs
have recently expired and [e]xpiring patents will result in an increase in generic drug usage,
which should create future savings. Additionally, the recent [f]irst approved biosimilar drug . .
. could open the door to cheaper, yet still effective, drug therapies that would be used as
alternatives to high-cost specialty drugs.
Link:
https://wfis.wellsfargo.com/insights/clientadvisories/pages/healthcaretrendprojections2016.aspx

7. Alice Chen & Dana Goldman, Health Care Spending: Historical Trends and
New Directions (August 2015)
This article provides an extensive history of historical trends in healthcare coverage since 1960.
In the final section, entitled the Golden Era, 2002-2015, the authors highlight several modern
trends that are leading to more efficient and less costly healthcare services.
From 2009 to 2013, the annual health expenditure growth rate has not exceeded 4%, a
phenomenon not experienced since the 1960s.
[T]he growth in Medicaid spending per enrollee has been well below the growth rate in the
medical care consumer price index, suggesting that Medicaid has been able to keep cost
increases below that of other sectors in the health system.
The article attributes the slowdown in healthcare expenditures in part to permanent changes in
benefit design, including various insurance structures that incentivize patients to utilize care
more efficiently, such as value-based insurance design (VBID) plans which align patients outof-pocket costs with the value of the health services they receive.
Consumer directed health plans (CDHPs), introduced in the mid 2000s, may also have
contributed to the slowdown in health expenditures. These plans combine high deductible
coverage with tax-exempt savings accounts, which are used to pay for routine health care
expense. . . . There is robust empirical evidence that CDHPs effectively incentivize patients to
change their health care use and reduce costs in the first year after introduction.
Others attribute the slowdown to changes in the organization and delivery care, with the rise of
Accountable Care Organizations (ACOs) being perhaps the most popular.
Other studies have focused on the decline of health care prices over time. . . . [T]he trend
toward tighter Medicare payment policies began in the middle of the 2000s. . . . Medicare
payments have risen below the relevant index of inflation each year . . . . Since private
payments tend to follow changes in Medicare fees, it is possible that tighter Medicare payment
policies created spillover effects in private payments as well.
Link: http://www.nber.org/papers/w21501.pdf

8. Robert Wood Johnson Foundation, Drop in Health Care Spending Due to

Slowdown in Rx Spending (August 2015)
This article provides a summary of the report discussed elsewhere in this binder on the findings
of a nine month study conducted by the Altarum Institute Center for Sustainable Health
Spending.
The health care spending growth rate slowed during the second quarter, with the quarterly
growth rate at 5.9 percent, a notch down from the estimated 6.6 percent estimated for the first
quarter. However, the two fundamental factors that are increasing health care spending growth

above the historical lows experienced during the 2009-2013 period are coverage expansion and
prescription drug spending. The relative falloff in Q2 spending is most likely attributable to the
continued slowdown in the growth of prescription drug spending in 2015.
If prescription drug spending growth continues to subside and the pace of coverage expansion
slows, the rate of health care spending growth may move closer to the historically low levels in
2009-2013. The slowdown in coverage is described as easy to predict, but the future trend in
prescription drug spending is far less certain.
The study also found that growth in health services prices remained very low in the second
quarter of 2015.
Additionally, job growth at hospitals continues at a healthy clip, with more than 15,000 jobs
added in July, higher than the monthly average of 12,000.
Link: http://www.rwjf.org/en/library/research/2015/08/drop-in-health-care-spending-due-toslowdown-in-rx-spending.html

Health Status
9. American Academy of Actuaries, Drivers of 2015 Health Insurance Premium
Changes (June 2014)
This issue brief discusses several factors that it predicted in 2014 would impact the 2015 rates for
health insurance premiums, including observations that support the existence of pent up demand.
In general, higher-cost individuals are more likely to enroll early during the open enrollment
period and in the first year of the program. Lower-cost individuals are more likely to enroll later
during the open enrollment period and perhaps in later years as the individual mandate penalty
increases.
Link: http://www.actuary.org/files/2015_Premium_Drivers_Updated_060414.pdf

10. Congressional Budget Office (CBO), Updated Estimates of the Effects of the
Insurance Coverage Provisions of the Affordable Care Act, April 2014
In a report discussing many factors potentially affecting the 2015 rates, the CBO describes pent
up demand and states that it will likely lead to healthier enrollees in 2015.
CBO and JCT anticipate that exchange enrollees in the future will be healthier, on average, than
the smaller number of people who are obtaining such coverage in 2014. Such an outcome would
be expected if people who are less healthy are more eager to obtain insurance, and it would be
consistent with enrollment and medical claims in Massachusetts after that state introduced

subsidized exchanges in 2006. That factor is expected to lower premiums in 2015 relative to
those in 2014.
Link: http://www.cbo.gov/sites/default/files/cbofiles/attachments/45231-ACA_Estimates.pdf

11. Society of Actuaries, Indications of Pent-up Demand, New ACA enrollee use
of preference-sensitive services (April 2015)
This study used the rates of preference-sensitive services as evidence of the existence of pent-up
demand and that it was in fact an issue that would naturally subside over time.
This paper would suggest that the overall increase in total cost of care due to these preferencesensitive services alone is less than 3 percent.
A facet of pent-up demand is that it does not persist. Once the initial surge in use has passed,
the behavior of the population should subside into a more persistent, long-term pattern. . . . This
paper examines use of the sorts of care that would be more indicative of pent-up demand than
morbidity or delivery preference, but does not attempt to adjust for all the differences between
the two populations.
Preference-sensitive treatments represented a smaller portion of the total cost of all care for the
newly insured than for the continuously insured in the first quarter of 2014.
The first-quarter 2014 data are consistent with studies of Medicaid expansion populations
which show that there is an initial high use of services that gradually tapers off over the year . . . .
Other studies have shown that later enrollees were younger and had fewer conditions.
Pent-up demand has been studies for years, and there is a consensus that it exists and that it is
transitory.
Link: https://www.soa.org/Research/Research-Projects/Health/2015-pent-up-demand-health.aspx

12. John Bertko, National Institute for Health Care Management, What to Expect
for 2015 ACA Premiums: An Actuary Opens the Black Box
A retired actuary wrote this policy brief explaining the rate-setting process and factors to
consider for 2015, including pent up demand.
Insurers must also consider the pent-up demand that is expected as previously uninsured
enrollees take advantage of their new coverage. Most actuaries priced for this higher utilization
when they set 2014 premiums, but they are likely to project a smaller impact from this factor for
2015.
Consumers with these high initial needs would have obtained services early in 2014 and there
should be disproportionately fewer enrollees with unmet health needs in 2015, assuming those
with the most pressing needs enrolled in 2014.

Link: http://www.nihcm.org/pdf/ACA_Premiums_2015_Bertko_EV2.pdf

13. Arkansas Blue Cross and Blue Shield, Part II: Reason for Requesting Rate
Increase (June 10, 2014)
Arkansas Blue Cross and Blue Shield explained the reason for requesting a rate increase in part
was due to less healthy people signing up for health insurance in 2014. Healthy people, on the
other hand, were more inclined to keep non-ACA compliant plans.
And, while we are seeing just a few months of claims experience, it is clear that a pent up
demand existed for medical servicesmost likely from individuals who previously couldnt
afford such care.
Health insurance premiums are affected by many factors, including who is enrolled in a health
planthe number of healthy people and those with chronic medical conditions. So far in [] 2014,
it appears that many people who need ongoing medical attention have signed up for these
products, which increases the cost of premiums for everyone in ACA products.
Some people have kept their previous plans, making the combination of people enrolled in new
plans not as balanced as it could be. Those with more costly health care conditions are choosing
to transition to fully ACA compliant plans.
Link:
http://www.arkansasbluecross.com/doclib/documents/members/rate%20increase%20notification
%20for%20metallic%20policies.pdf

14. Julia Lerche & Ken Ehresmann, Wakely White Paper, Considerations for
2016 Health Insurance Rate Development, Rate Filing, and Rate Review (March
2015)
This White Paper provides a succinct summary of the key considerations for insurers when
setting 2016 rates, including changes to the actuarial value calculator, a list of the maximum outof-pocket limits for different types of plans, and changes to prescription drug requirements. The
White Paper concludes with an overview of Trend, the 3 Rs, and other factors potentially
affecting 2016 rates.
[T]here is general consensus that the remaining uninsured population who may take-up
insurance in 2016 is generally healthier than the population of previously uninsured individuals
who have already entered the market . . . .
Unlike past years, most issuers will have experience for the newly enrolled population resulting
from the major coverage provisions of the ACA. Enrollment and claims data can be analyzed to
better estimate the impact of population changes on projected claims compared to the
information available for 2014and 2015rating.

This will be the first year for which many issuers have a full calendar year (2014) of claims
experience that reflect the major changes under the ACA. In considering this experience, issuers
and regulators will need to understand the distribution of enrollees based on when and how long
members were enrolled in coverage.
Link: http://www.wakely.com/wp-content/uploads/2013/12/White-Paper-2016-RateConsiderations.pdf

15. State Health Access Data Assistance Center, The First Insurance Claim of
New ACA Enrollees (August 2015)
This research brief calls into question whether pent-up demand exists in all categories of new
ACA enrollees. Angela Fertig and Caroline Carlin of the Media Research Institute and Sharon
Long of the Urban Institute found that the first claim of new Medicaid enrollees displayed
patterns of utilization consistent with pent-up demand, but observed mixed evidence of pent-up
demand from the first claim filed by new enrollees with non-group coverage.
Among those with any claims in the first 6 months, the first claim filed by new Medicaid
enrollees was significantly more likely to involve a new patient visit (20% vs. 14%) and a
diagnostic procedure (79% vs 53%) compared to ongoing employer plan enrollees. The first
claim filed by new individual plan enrollees was also significantly more likely to involve a new
patient visit (19% vs. 14%) but has the same probability of involving a diagnostic procedure
(52% vs. 53%) relative to ongoing enrollees in an employer plan.
Our analysis of the first claim in the first 6 months of coverage shows patterns of utilization
among new Medicaid enrollees that are suggestive of the presence of pent-up demandmore
rapid health care visits and more intense visits, as measured by any visit, new patient visits and
diagnostic procedures. However, if future analysis of longitudinal data shows consistently high
utilization among new Medicaid enrollees over time, this group may simply be higher-risk than
our comparison group of ongoing employer plan enrollees. In contrast, we find mixed evidence
of pent-up demand for new individual plan enrollees relative to the comparison group. The time
until first visit is longer, but the first visit is more likely to be a new patient visit for those with
new individual coverage, compared to those with ongoing employer coverage.
Link: http://www.shadac.org/share/grant/pent-health-care-demand-after-aca-does-it-exist-andwill-it-go-away

16. Milliman, What now? 2015 Individual Market Pricing: Morbidity and Other
Considerations (October 2013)
This article discusses the impact of the reduction of federal transition reinsurance, rising ACA
health insurer fees, morbidity changes, and the wear off of pent-up demand.
Generally with regard to reinsurance payment, [i]f individual market growth is significant in
2015, the transitional reinsurance program payments into the individual market may well go
down more than 40% on a per-member basis, simply because the $6 billion budget will be spread

across a larger individual market in 2015 relative to 2014. As a result, actuaries need to estimate
the size of the (non-grandfathered) individual health insurance market in 2015.
Actuaries estimate that the reinsurance program has reduced premiums by 10% to 15% in 2014,
so slimming it down will have a certain and material impact on pricing in 2015.
Regarding health insurer fees, to accurately estimate their share of the $11.3 billion 2015
insurer fee, insurers will not only need to estimate their own premium volume for 2014, but also
that of the entire 2014 health insurance market, taking into consideration the impact of the size
and profit status factors on the overall market.
For morbidity estimates using actual 2014 data, [i]t is important to note that, due to the ACA
risk adjustment program, assumptions regarding the morbidity of the entire 2014 individual
market are necessary for pricingnot just one particular insurers members. While the latter is
valuable, it does not provide a complete picture. As certain factors drive increased
participation in the market in 2015, overall morbidity is generally expected to improve, which
will help to mitigate rate increases. The article poses further questions and issues to consider
when assessing an insurers morbidity rates.
For pent up demand, [m]any believe that the impact of pent-up demand lasts a year or less.
Thus, as the proportion of the 2015 population that was previously uninsured is expected to
decreaseas many uninsured individuals will have obtained insurance in 2014 thanks to ACA
the impact of pent-up demand on claim costs is also expected to decrease relative to 2014. This
should help to mitigate 2015 rate increases in the individual market.
Link: http://us.milliman.com/insight/2013/What-now-2015-individual-market-pricingMorbidity-and-other-considerations/.

Effect of the Penalty

17. Chabeli Herrera, Miami Herald, When paying the Obamacare penalty is
cheaper than buying insurance
In this article dated May 15, 2015, Herrera reports that the penalty in 2014 was set a low enough
percentage that 2-4% of consumers opted to pay the penalty instead of obtaining health
insurance, but this is likely to change in 2015 when the penalty increases.
The Obamacare fee is still small enough this year $95 or 1 percent of household income in
2014, whichever is greater to make it worthwhile for people like Denig to opt out of health
coverage.
The U.S. Department of Health and Human Services estimated earlier this year that 2 to 4
percent of consumers would pay the penalty, but final numbers have not yet been released by the
Internal Revenue Service.

Thats likely to change, though, when the penalty nearly quadruples next year and then spikes
to $695 or 2.5 percent of household income, whichever is greater, in 2016.
Link: http://www.miamiherald.com/news/local/community/miami-dade/article21105861.html

18. McKinsey Center for U.S. Health Reform, 2015 OEP: Insight into consumer
behavior (March 2015)
The results of a survey of thousands of individuals are depicted in graphs and charts. The survey
found that 12% of the ACA market was newly insured in 2015 and that 70% of the newly
insured population was considered a low health risk.
Of the newly insured, 62% signed up for health insurance because someone told me I would
have to pay a penalty if I didnt get coverage. Twenty percent of the newly insured polled
reported that they were unaware of the penalty.
Of the persistently uninsured population, defined as someone who was uninsured in 2014 and
2015, 41% were unaware of the penalty.
Link:
http://healthcare.mckinsey.com/sites/default/files/McKinsey%20Reform%20Center_2015%20O
EP%20Consumer%20Survey%20Insights.pdf

19. Amitabh Chandra, et al., The New England Journal of Medicine, The
Importance of the Individual MandateEvidence from Massachusetts (January
2011)
The findings of this study of the role of the individual mandate in health care reform in
Massachusetts support the existence of pent up demand and that healthy enrollees will increase
once the penalty goes into full effect.
When the mandate became fully effective at the end of 2007, there was an enormous increase in
the number of healthy enrollees and a far smaller bump in the enrollment of people with chronic
illness.
Link: http://www.nejm.org/doi/full/10.1056/NEJMp1013067

Delivery System Reform

20. The Commonwealth Fund, The Affordable Care Acts Payment and Delivery
System Reforms: A Progress Report at Five Years (May 2015)

This progress report from The Commonwealth Fund provides a more detailed overview of the
delivery system reforms implemented through ACA and the accountable care organizations
(ACOs). The report found that improvements are estimated to have saved billions of dollars in
health care costs. The report further details the reforms implemented through ACA for provider
payment, and highlights how the law reduced overpayments to private plans administering
Medicare benefits through the Medicare Advantage program, and targeted quality programs
that lead to inefficiencies and jeopardize patient health. The reforms include long term plans
that have encountered some delays and hiccups in implementation, but may soon make
greater strides possible.
More than 400 ACOs participating in the reforms serving nearly 7.2 million beneficiaries, or 14
percent of the Medicare population . . . exceeded expectations.
ACOs in the Shared Savings Program showed some improvement on most of the 33 quality
measuresfrom diabetes care to depression screeningcompared with other Medicare
providers.
Evaluation results show that in the initiatives first year, spanning October 2012 to September
2013, the practices generated enough savings to cover most of the $20 per-member, per-month
care management fee paid on average by CMS (although not enough to produce net savings
overall). While there was considerable variation in performance among the seven participating
U.S. regions, across all markets emergency department visits decreased by 3 percent and hospital
admissions by 2 percent after year 1. Significant effects on quality were few.
A major theme emerging from these efforts to transform primary care is the critical role of
technical and financial support in building the capacity of physician practices to function as
medical homes. [F]ederal investments have stimulated unprecedented collaboration and
dialogue among payers, both private and public, and providers on how to reorganize primary
care at the local level to achieve the aims of reform.
Link: http://www.commonwealthfund.org/~/media/files/publications/issuebrief/2015/may/1816_abrams_aca_reforms_delivery_payment_rb.pdf

21. The Journal of the American Medical Association, Association of Pioneer

Accountable Care Organizations vs. Traditional Medicare Fee for Service with
Spending, Utilization and Patient Experience (June 2015)
This study found that the Pioneer Accountable Care Organization (ACO) Model was more costefficient and resulted in the same quality of patient care.
In the first 2 years of the Pioneer ACO Model, beneficiaries aligned with Pioneer ACOs, as
compared with general Medicare FFS beneficiaries, exhibited smaller increases in total Medicare
expenditures and differential reductions in utilization of different health services, with little
difference in patient experience.
Link: http://jama.jamanetwork.com/article.aspx?articleid=2290608&resultClick=3

22. Centers for Medicare and Medicaid Services (CMS), Medicare ACOs Provide
Improved Care While Slowing Cost Growth in 2014
CMS reported millions of dollars in savings from health care reforms such as the Pioneer
Accountable Care Organization (ACO) Model and the Medicare Shared Savings Program.
During the second performance year, Pioneer ACOs generated estimated total model savings of
over $96 million and at the same time qualified for shared savings payments of $68 million.
They saved the Medicare Trust Funds approximately $41 million.
Pioneer ACOs achieved lower per capita growth in spending for the Medicare program at 1.4
percent, which is about 0.45 percent lower than Medicare fee-for-service.
58 Shared Savings Program ACOs held spending $705 million below their targets and earned
performance payments of more than $315 million as their share of program savings. One ACO in
Track 2 overspent its target by $10 million and owed shared losses of $4 million. . Total net
savings to Medicare is about $383 million in shared savings, including repayment of losses for
one Track 2 ACO.
Link: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2014-Fact-sheetsitems/2014-09-16.html

23. Tianna Tu, et al., Leavitt Partners, The Impact of Accountable Care: Origins
and Future of Accountable Care Organizations (May 2015)
This report begins with a background on different types of systems reforms over the last few
decades and concludes that recent delivery system reforms have successfully reduced costs and
improved quality of care.
Both commercial and public ACOs have seen success at reducing costs and improving quality,
which will encourage more ACOs to enter the market in the near future.
As of November 2014, Medicare ACOs in both the Pioneer and MSSP initiatives have together
generated $877 million in savings, $460 million of which has been returned to the ACOs as part
of their shared savings contract.
While savings generation is varied, overall, Medicare ACOs continue to improve on quality
scores year over year, and have maintained a higher average performance than other Medicare
FFS providers on corresponding measures.
Link: http://www.brookings.edu/~/media/research/files/papers/2015/05/12-aco-paper/impact-ofaccountable-careorigins-052015.pdf

24. Centers for Medicare & Medicaid Services (CMS), CMS announces ValueBased Insurance Design Model to improve care and reduce costs in Medicare
Advantage Plans (September 2015)
CMS issued a press released on September 1, 2015, announcing a new Value-Based Insurance
Design Model that will begin in select states in January 2017 and is intended to further reduce
health care costs.
The goal of the model is to improve beneficiary health, reduce the utilization of avoidable highcost care, and reduce costs for plans, beneficiaries and the Medicare program. The model focuses
on Medicare Advantage enrollees with the chronic conditions of diabetes, congestive heart
failure, chronic obstructive pulmonary disease (COPD), past stroke, hypertension, coronary
artery disease, mood disorders, and combinations of these categories.
Link: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2015-Pressreleases-items/2015-09-01.html

25. Leslie Small, Medicare Advantage plans to test value-based insurance

design model (September 1, 2015)
This article reports on the new Value-Based Insurance Design Model that will begin in seven
states in January 2017 and is intended to encourage enrollees to use high-value clinical
services that are the most likely to improve their health, and consequently, keep costs down.
The goal is to encourage these enrollees to use high-value clinical services that are the most
likely to improve their health, and consequently, keep costs down.
[R]esearch seems to support these models, as a 2014 study suggested that insurers can apply
value-based design to high-deductible plans in order to improve care and lower costs for
enrollees with chronic conditions. Similarly, value-based insurance design can help insurers cope
with the high costs of specialty medications.
Link: http://www.fiercehealthpayer.com/story/medicare-advantage-plans-test-value-basedinsurance-design-model/2015-09-01

26. Julie Huppert, Express Scripts, First Look: 2015 Public Exchange Plan Rx
Trends
This study discusses trends in prescriptions and medication use and discusses how healthier
people are predicted to be entering the market in 2015 to achieve a more balanced risk pool.
While high-cost specialty medication use in exchange plans grew significantly between March
1, 2014 and March 1, 2015, we may be seeing the start of a new chapter with this program,

where healthier Americans who use fewer prescription medications are engaging with these
plans, helping plans achieve a more balanced risk pool, which will help them sustain benefit
offerings in the future.
Link: http://lab.express-scripts.com/insights/government-programs/first-look-2015-publicexchange-plan-rx-trends

27. Melinda Beck, Wall Street Journal, Pioneer Model Saved Medicare Nearly
$400 Million in Two Years (May 2015)
The Wall Street Journal reports that, according to the Centers for Medicare and Medicaid
Services (CMS), the Pioneer Accountable Care Organization model saved Medicare nearly
$400 million over two years and is the first alternative-payment model certified to cut costs
while improving health-care quality. As a result, the Pioneer model is eligible to be expanded
to [a] larger group of Medicare beneficiaries, and CMS officials are seeking to include parts of
the Pioneer program in new options for the next group of ACOs, including assigning patients to
the group in advance, rather than retrospectively.
Health and Human Services Secretary Sylvia M. Burwell is quoted in the article as stating that
[t]his is a crucial milestone in our efforts to build a health-care system that delivers better care,
spends health-care dollars more wisely, and results in healthier people.
CMS researchers further found that the 600,000 patients in Pioneer ACOs spent, on average,
$36 less per month in 2012 and $11 less per month in 2013 than comparable non-affiliated
patients. The Pioneer patients reported fewer hospitalizations, used fewer tests, procedures
and imaging services and had more timely care and better communication with clinicians.
Link: http://www.wsj.com/articles/pioneer-model-saved-medicare-nearly-400-million-in-twoyears-1430748437

28. Bob Herman, Modern Healthcare, What Medicares value-based insurance

test could mean for commercial plans (September 3, 2015)
Medicare Advantages proposed value-based insurance design (VBID), set to start on January
1, 2017, and last for five years, has high potential to reduce health costs while also improving the
quality of care.
A new test within the Medicare Advantage program will lower out-of-pocket costs for
chronically ill patients who seek high-value services and providers. Supporters hope the project
will lead to changes in federal law and become a template for all health plans with sizable costsharing, which have become the standard offering from employers and insurers.
[Congress. Rep. Diane Black (R. Tenn.)] voted multiple times to repeal the ACA and said the
law is built on a grand deception. Nevertheless, Black said in a statement, VBID holds the
potential to vastly improve delivery of care and will allow providers to lower costs for certain

high-value services and treatments that are clinically proven to promote better health
outcomes.
Link: http://www.modernhealthcare.com/article/20150903/NEWS/150909976

29. David Bodycombe, Managed Care, More Data in Health Care Will Enable
Predictive Modeling Advances (February 2013)
This article explains that better data collection techniques and access to more data will lead to
advancements in Predictive modeling (PM), which in turn will improve overall health care.
After going into more specifics about each of these categories, the article concludes that [t]he
promise of predictive modeling for population health management can be achieved as long as
HCOs understand its inherent shortfalls and focus on maximizing benefits such as enhanced
clinical decision support and highly personalized health plans. Collaboration is key to successful
predictive modeling.
The article credits ACA-influenced trends with affecting how health care organizations use
PMs, including (1) Increased adoption and use of electronic health records (EHRs), including
enhanced access to EHR data, such as family history, lab results, prescription utilization, prior
successful/unsuccessful treatments, and treatment compliance; (2) Enhanced emphasis on
population-based patient care management; and (3) An intense focus on clinical, operational,
and financial performance and cost rather than cost alone.
Link: http://www.managedcaremag.com/archives/1302/1302.predictive_model.html

30. Dan Mangan, CNBC, Obamacare program generates substantial Medicare

savings (May 2015)
According to this article, the Health and Human Services Secretary Sylvia Burwell reported
savings due to Obamacare programs, including the Pioneer program, designed to reduce
Medicare costs and improve patient outcomes of $300 per Medicare beneficiary per year during
2012 to 2013. The article explains how ACOs work and provides a brief overview of the
background of HHSs program. While the article notes that results are still mixed, it highlights
many of the Pioneer programs achievements.
An Obamacare program designed to hold down Medicare costs and improve patient outcomes
generated more than $384 million in savings in its first two years of operation.
The department called savings that have been realized so far substantial for a program that
currently serves more than 600,000 beneficiaries in Medicare, the federally run health-care
coverage system that primarily serves senior citizens.
Link: http://www.cnbc.com/2015/05/04/obamacare-program-generates-substantial-medicaresavings.html

Narrow Networks
31. McKinsey Center for U.S. Health Reform, Hospital networks: Evolution of the
configurations on the 2015 exchanges (April 2015)
A 2015 study by the McKinsey Center found that narrowed-network plans continue to result in
lower premiums and net savings. Median premiums in 2015 were 15% to 23% higher for broadnetwork than narrowed-network plans.
Furthermore, among all re-filed 2014 plans, narrowed-network plans had a smaller median
premium increase [in 2015] than broad network plans (4% vs. 8% respectively).
Seventy percent of the lowest-price plans this year, compared with 66% last year, are based on
narrowed networks.
Insurance plan designs can further lower narrowed-network premiums. Within the silver tier,
64% of narrowed-network plans are part of health maintenance organizations (HMOs) or
exclusive provider organizations, compared with 43% of broad-network plans. Similarly, 56% of
silver-tier narrowed-network plans have limited out-of-network (OON) coverage, compared with
37% of broad-network plans.
Co-branded plans are more likely to have ultra-narrow networks and had 12% lower median
premiums than provider-led plans.
Link: http://healthcare.mckinsey.com/sites/default/files/2015HospitalNetworks.pdf

The 3 RsReinsurance, Risk Adjustment, and Risk Corridors

32. Sarah Ferris, The Hill, $800M left over in ObamaCare reinsurance program
(June 2015)
The Hill reported on June 30, 2015, that the federal government had announced that the
reimbursement program had $800 million remaining in its reimbursement fund for health
insurers in 2015, a sign that marketplaces under ObamaCare needed less assistance than
expected.
The federal government announced Tuesday that it has $800 million remaining in its
reimbursement fund for health insurers this year, a sign that marketplaces under ObamaCare
needed less life support than expected.
The Obama administration paid out a total of $7.9 billion in its reinsurance program in 2014,
less than the $8.7 billion it collected in payments. The rest will carry over into the next two
years.

Nearly all of the 484 health insurers that paid into the pool will be receiving some money back.
Link: http://thehill.com/policy/healthcare/246601-800m-left-over-in-obamacare-reinsuranceprogram

33. Timothy Jost, Health Affairs Blog, Implementing Health Reform: New CMS
Guidance and First-Year Results (Northern Tribe v. Burwell Update) (June 2015)
Timothy Jost reported on June 30, 2015, data regarding the successful completion of the first
year of the risk adjustment and reinsurance programs. He updated this report on July 7, 2015,
with information regarding the SHOP Exchange Program, which continues to grow and will
potentially make better coverage available to small employers and their employees.
[T]he big news is that two incredibly complex programs [reinsurance and risk adjustment] that
play a key role in encouraging insurers to accept high-cost patients and to discourage insurers
from risk selection seem to have come off without serious technical problems. It is quite a
contrast to last years launch of the exchanges and a testimony to the effectiveness of the current
management of CMS and its relationship with insurers.
The reinsurance program was supposed to collect $10 billion for 2014 and to pay insurers
offering ACA-compliant (non-grandfathered or grandmothered) plans in the individual market
80 percent of the cost of claims that exceeded $45,000 up to a cap of $250,000. In fact the
program only collected $8.7 billion, but total claims equaled only $7.3 billion, so the program
will pay out 100 percent of the claims between the $45,000 threshold and $250,000 cap.
Four hundred and thirty-seven insurers will receive reinsurance payments. Excess funds
collected will be used to enhance reinsurance payments for 2015 or 2016.
The risk adjustment program will transfer 10 percent of funds in the individual market, 6
percent in the small group market, 21 percent in the catastrophic market, and 2 percent in states
with merged markets. The report lists for each insurer subject to the risk adjustment program
how much the insurer will pay or receive in the individual and small group market.
Blue Cross of California will receive $401 million in reinsurance payments but owe $182
million in risk adjustment contributions in the individual market. The California Blue Shield
plan, on the other hand, will collect $363 million in reinsurance and $135 million in individual
market risk adjustment funds.
While many insurers will receive, or in some cases, pay relatively small net amounts, for some
insurers massive amounts of money are involved.
As of May 2015, approximately 85,000 Americans have 2015 coverage through the SHOP
marketplaces through approximately 10,700 small employers. These totals do not include
employers that enrolled their employees in 2014 but have not renewed for 2015.
Link: http://healthaffairs.org/blog/2015/07/01/implementing-health-care-reform-first-yearresults-from-reinsurance-and-risk-adjustment-programs/

34. The Center for Consumer Information & Insurance Oversight, Proposed
HHS Notice of Benefit and Payment Parameters for 2015
The proposals from HHS regarding adjustments to the reinsurance program in 2015 confirm that
HHS is estimating greater payments for insurers from the contribution fund.
We are proposing to decrease the reinsurance attachment point from $60,000 to $45,000 for the
2014 benefit year due to updated estimates that allow for greater payments from the contribution
fund.
We are proposing the following 2015 uniform reinsurance payment parameters: an attachment
point of $70,000, a reinsurance cap of $250,000, and a coinsurance rate of 50 percent. We also
propose that if reinsurance contributions collected for a benefit year exceed the requests for
reinsurance payments for the benefit year, we would increase the coinsurance rate on our
reinsurance payments (or make other modifications to reinsurance parameters) to ensure that all
of the contributions collected for the 2014 benefit year are expended for claims for that benefit
year.
These changes maximize the benefits of the reinsurance program in 2014 and 2015 by investing
more of the funds collected for the program sooner.
Link: https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/proposed-2015-paymentnotice.html

35. Kaiser Family Foundation, Explaining Health Care Reform: Risk Adjustment,
Reinsurance, and Risk Corridors (January 2014)
The Kaiser Family Foundation released in January 2014 explains in detail the 3Rsrisk
adjustment, reinsurance, and risk corridorsand how these programs at the time were designed
to work. The report includes several diagrams and charts as wells as a breakdown of the
calculation of payments and costs for each program.
The ACAs risk adjustment program is intended to reinforce market rules that prohibit risk
selection by insurers.
With regard to reinsurance, the goal of the program is is to stabilize individual market
premiums during the early years of new market reforms. Eligible insurance plans will receive
reinsurance payments when the plans cost for an enrollee crosses a certain threshold, called an
attachment point. HHS proposes to set the attachment point (a dollar amount of insurer costs,
above which the insurer will be eligible for reinsurance payments) at $45,000 in 2014 and
$70,000 in 2015.
The ACAs temporary risk corridor program is intended to promote accurate premiums in the
early years of the exchanges (2014 through 2016) by discouraging insurers from them from
setting them high in response to uncertainty about who will enroll and what they will cost. A

qualified health plan (QHP) with claims falling below its target amount by 3%8% pays HHS
in the amount of 50% of the difference between its actual claims and 97% of its target amount.
A QHP with claims falling below its target amount by more than 8% pays 2.5 percent of the
target amount plus 80% of the difference between their actual claims and 92% of its target.
Link: https://kaiserfamilyfoundation.files.wordpress.com/2014/01/8544-explaining-health-carereform-risk-adjustment-reinsurance-and-risk-corridors1.pdf

36. Anthony Brino, Fewer reinsurance needs buoy higher payments (June 2015)
In an article released June 18, 2015, Brino reports that the reinsurance program received less
extraordinary claims than feared leaving more money to spread around and coverage increases
by HHS to 100% for eligible individual market plans.
The Department of Health and Human Services was pleased to announce that the national
coinsurance rate for the transitional reinsurance programs 2014 benefit year will be increased
from 80 percent to 100 percent for eligible individual market plans. The covered costs are for
claims in between $45,000 and $250,000, and payments will be coming in August, the agency
said.
This should be good news for insurers, many of which have been anticipating receiving less in
risk corridor programs than they had hoped for because Congress has limited payments under
that program to the funds that are actually collected from insurers, wrote Washington and Lee
law professor Timothy Jost, in Health Affairs. It also indicates, moreover, that insurers have
been receiving fewer high-cost claims than had been anticipated, which should help them to
stabilize premiums.
Early on, it was clear to the Commonwealth Fund and others that the ACAs 3Rs helped keep
premiums down in 2014 and moderated likely increases in 2015.
Link: http://www.healthcarepayernews.com/content/fewer-reinsurance-needs-buoy-higherpayments#.VgxDGpf1Isk

37. Americans Health Insurance Plans, Affordable Care Act Premium

Stabilization Programs: How Reinsurance, Risk Corridors, and Risk Adjustment
Protect Consumers (November 2013)
This issue brief explains the three interconnected risk management programs created by the
ACA, reinsurance, risk corridors, and risk adjustments (collectively the 3Rs) and provides
more details regarding how these programs will create confidence in the new marketplaces and
stability in premiums for consumers.
The reinsurance program will help health plans meet the needs of high-cost enrollees while
making individual market premiums more affordable for consumers. The Department of Health

and Human Services (HHS) estimates that the reinsurance program will reduce premiums in the
individual market in 2014 by 10-15 percent compared to what they would have been absent this
program.
Like the reinsurance program, the risk corridors program is a temporary measure designed to
ease the transition between the old and new marketplace and help stabilize premiums for
consumers. As health plans gain more experience setting premiums in this new market over time,
the protections provided by risk corridors will become less critical for protecting market
stability.
By spreading risk across all health plans in a state, risk adjustment promotes market stability as
it protects consumers with complex medical conditions. Preventing adverse selection will lead to
a more robust marketplace and more affordable coverage options for consumers.
Because of the increased uncertainty with the www.healthcare.gov website and the change in
treatment of 2013 policies, the 3Rs will play a more critical role in creating a stable market for
consumers. Consumers decisions to continue their 2013 policy, purchase an ACA-compliant
policy, or forego coverage in 2014 may necessitate adjustments to the 3Rs. Without additional
support, consumers may face higher premiums and fewer choices in future years.
Link: http://www.ahipcoverage.com/wp-content/uploads/2013/11/ACA-Premium-StabilizationPrograms-3.pdf

38. Anthony Brino, Flawed data, calculations may skew states risk adjustment
(January 2015)
The Massachusetts Association of Health Plans (MAHP) registered concerns about
overpayments in the risk adjustment program and inaccurate data used by larger insurance
companies to assess risk adjustment.
Blue Cross Blue Shield of Massachusetts officials are comfortable with the risk adjustment
formula as it stands today. BCBS chief actuary Andreana Santangelo told the Boston Globe that
their membership includes a significant percentage of individuals with chronic conditions, comorbidities and at high risk of acute illness. Santangelo also said that the nonprofit company is
actually losing money currently without the risk adjustment program. MAHP, however, believes
a one-year moratorium is needed to prevent the likes of Blue Cross from being overcompensated for its riskier membership pool in part because the data being used in the
calculations may not be sufficient.
Officials at the Massachusetts Connector have acknowledged that risk adjustment simulations
for the second and third quarters of 2014 were impacted by significant inaccuracies in the data
being extracted from the all payer claims database, as MAHPs Pellegrini told the Governor.
Such errors would significantly affect both the calculation of plans average actuarial risk and
the market-wide risk score. Moreover, she added, the overall scope of the identified
discrepancies is still unknown to MAHP and our member plans.

Link: http://m.healthcarepayernews.com/node/25636/47

39. Doug Norris, et al., Risk Corridors under the Affordable Care ActA Bridge
over Troubled Waters, but the Devils in the Details (October 2013)
This article explains in detail the multiple factors impacting the calculations of the risk corridors
and the complications that may arise for insurers, including incentives to underprice plans.
Issuers may be able to readily model their own risk score, but will find it difficult to model the
overall market risk score (which is just as important in the risk adjustment calculation), and the
risk adjustment transfer payment feeds into the risk corridor calculation, which populates the
MLR formula.
Because of the risk-sharing nature of the program, it could provide an incentive for an issuer to
price its plans competitively (with reasonable but aggressive assumptions), and if its price ends
up being too low to cover costs, it will share that burden with HHS, while at the same time
gaining market share.
Link:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ve
d=0CB0QFjAAahUKEwi10O2u2LDIAhXF1R4KHRDaDQw&url=https%3A%2F%2Fwww.soa
.org%2Flibrary%2Fnewsletters%2Fhealth-watch-newsletter%2F2013%2Foctober%2Fhsn-2013iss73-norris.aspx&usg=AFQjCNFsiL7pOLHOuraCnLXTg0yCFmIWzQ

40. Jason Siegel & Jason Petroske, Milliman Healthcare Reform Briefing Paper,
When adverse selection isnt: Which members are likely to be profitable (or not)
in markets regulated by the ACA (December 2013)
The report predicts that the implementation of the 3Rs, including transitional reinsurance, risk
corridor programs, and a permanent risk adjustment mechanism, will result in increased
incentives for providing health insurance to newborns, elderly, and female patients, and
essentially the exact opposite outcome one would expect without these programs.
Newborns and the elderly are the most profitable segments after building in the impact of the
3Rs. Notice that these same members would result in losses in the absence of the 3Rs.
The implementation of the 3Rs could create an incentive to attract and maintain a block of
business that is demographically older and more female than ones competitors.
While these results are counterintuitive, remember that individuals with the lowest risk score
are not always those with the lowest claim costs. Among members with any particular medical
condition there will certainly be some with high costs for which a health plan will lose money,
and others with the low costs for which the plan would make money. When we composite results

over all members diagnosed with each of the conditions handled by the HHS model, we find that
for most of these conditions the plan will make money on average.
Link: http://us.milliman.com/uploadedFiles/insight/2013/adverse-selection-aca.pdf

41. Doug Norris, Daniel Perlman & Hans K. Leida, Milliman Healthcare Briefing
Paper, Risk Corridors Episode IV: No New Hope (December 2014)
This December 2014 briefing paper focuses on risk corridors, providing an overview of the
program and analysis of the potential impact of proposed regulations. Several observations and
conclusions from the article relate to how the risk corridor may affect insurers rates.
The appropriation in question is for fiscal year 2015 (ending September 30, 2015), which is
when risk corridor payments for program year 2014 will be made.
The article highlights methods by which any shortfalls [in the risk corridor program] could be
covered, including the user fee that the Centers for Medicare and Medicaid Services (CMS)
collects directly to cover the cost of the federally facilitated exchanges.
Insurers may also need to price QHPs [qualified health plans] more conservatively in 2016 now
that risk corridors have become even more uncertain.
Some insurers have already assumed that risk corridors would not be fully funded when setting
rates last spring, which could serve to increase 2015 premiums and dampen any 2016 impact to
some degree.
Link: http://www.milliman.com/uploadedFiles/insight/2014/risk-corridors-episode-iv.pdf

42. Shyam Killi & Aaron S. Wright, Milliman Healthcare Reform Briefing
Report, Risk adjustment plus risk corridors: Offsetting impact (January 2015)
This report prepared in January 2015 to assist actuaries in considering the combined impact of
the 3Rs, and more specifically to illustrate the synergistic effect of risk corridors and risk
adjusters compared with the effect of each element separately.
By recognizing these offsetting impacts, the appointed actuary may be more confident with
determining liabilities to be included in the annual statement and classification of the actuarial
opinion. Based on the hypothetical scenarios we ran, the range of impact on balance sheets from
potential variability of the combined effect of risk adjuster and risk corridor payments is
substantially smaller compared to the variability of either the risk adjuster or risk corridors by
themselves.

Taken alone, there is the potential for significant variability in both the risk adjustment program
and the risk corridor estimates. However, as shown in Figures 1 to 4 above, when combined, the
impact of the variability in the risk adjustment can be substantially offset by the risk corridor
estimate, depending on full or partial payout.
Link: http://us.milliman.com/uploadedFiles/insight/2015/risk-adjustment-plus-corridors.pdf

43. Mary van der Heijde & Jordan Paulus, Milliman White Paper, Top 10
notable issues related to the federal risk adjuster
This White Paper details how risk adjustment is calculated by HHS, compares the methodology
to calculation in different states, and concludes with an assessment of how risk adjustment can
lead to cost-savings for insurers.
If issuers can effectively treat conditions, they can reduce claim costs while also receiving a set
risk transfer payment.
Insurers that are cost-effective in treating illnesses may find an advantage by receiving more in
risk transfer payments than it costs to treat that condition.
Link: http://www.milliman.com/uploadedFiles/insight/2015/federal-risk-adjusterconsiderations.pdf?lng=%27A=0

44. American Action Forum, The ACAs Risk Spreading Mechanisms: A Primer on
Reinsurance, Risk Corridors and Risk Adjustments
In an overview of the 3Rs published January 9, 2015, the American Action Forum details
several specific mechanisms in the ACA that will benefit insurers and reduce risks.
In order to improve the incentives for insurers to participate, the ACA includes three risk
spreading mechanisms: temporary reinsurance, temporary risk corridors, and permanent risk
adjustment, all of which address potential risk pool issues by limiting the amount an insurance
company can lose by participating in the marketplace.
Regarding risk corridors, [w]hen a plans costs are 92-97 percent, or 103-108 percent of the
allowable amount 50 percent of the plans gain or loss is shared with HHS. If the costs are below
92 percent of above 108 percent, 20 percent of that gain or loss is shared. For 2015, these
parameters will be shifted by two percentage points, increasing the ceiling payments and raising
the floor on profits.
Ultimately, HHS acknowledged through regulation that while it believes the program will be
budget neutral, it recognizes the requirement of the ACA to make payments to those issuers with
risk corridors ratios above 103 percent.

HHS indicated in final regulation that the ACA requires HHS to provide payments in-full to
issuers, and the final rule states that the agency will provide other sources of funding if the
programs funds are insufficient according to the availability of appropriations.
Link: http://americanactionforum.org/research/the-acas-risk-spreading-mechanisms-a-primer-onreinsurance-risk-corridors-a

45. HighRoads, CMS Maximizes Reinsurance Protections (June 2014)

Reporting on HHSs final rule for exchange and insurance market standards for 2015,
HighRoads highlights several changes by CMS that should maximize reinsurance protections in
the long run and result in increased payments. For the reinsurance program, CMS lowered the
attachment points for reinsurance payments in 2015 and lowered the threshold at which payers
became eligible for reinsurance payments in 2015. For the risk corridors program, CMS,
increased the ceiling on allowable administrative costs and the floor on profits.
In its final rule for exchange and insurance market standards for 2015 and beyond, the Centers
for Medicare & Medicaid Services (CMS) assured viability of reinsurance, risk corridors and risk
adjustment programs in face of sequestration and budget neutrality. CMS also increased the
ceiling on administrative costs and lowered the attachment points for reinsurance payments in
2015.
In coordination with the Office of Management and Budget (OMB), the Department of Health
and Human Services (HHS) has determined that the reinsurance and risk adjustment funds that
are sequestered at 7.3 percent in fiscal year 2015 will become available for payment to issuers in
FY 2016 without further congressional action.
CMS also finalized a proposal to lower the threshold at which payers become eligible for
reinsurance payments in 2015 from $70,000 to the 2014 level of $45,000. This rule will keep in
place protections so that reinsurance payments start once a customer has made $45,000 in
claims.
Additionally, in a move that will increase payments to plans and reduce assessments, CMS
increased the ceiling on allowable administrative costs (currently set at 20 percent) and the floor
on profits (currently set at 3 percent) by 2 percent in the risk corridors calculation. In doing so,
CMS hopes to account for uncertainty and changes in the market prior to and during benefit year
2015.
CMS is essentially maximizing reinsurance protections in the long run by changing the payment
threshold level.
Link: http://www.highroads.com/newsroom/cms-maximizes-reinsurance-protections/