Come one, come all! Actuaries as ringmasters

by Mary Hegemann, senior consulting actuary, Wakely Consulting Group

Comparing politicians to the circus is not a new concept, but the Affordable Care Act (ACA) has brought this comparison to a whole new big tent.  Some state politicians are quite the attractions, refusing to budge when it comes to planning for ACA implementation.  I feel like actuaries need to be the little monkeys at the circus clanging cymbals while riding a bicycle trying to get everyone’s attention (oh wait, maybe that was Curious George).  It’s not that doomsday is coming.  It’s that politics are getting in the way of preparation, and by the time the politics get sorted out, we may end up with an elephant-sized mess.

Take risk adjustment for example.  Under the ACA, beginning in 2014 risk adjustment will be incorporated in the individual and small group markets in all states.  States without exchanges will default to having the feds administer risk adjustment.  States with exchanges can choose to administer risk adjustment on their own or to have the feds administer it for them.  The catch is this – how are carriers going to price 2014 products in 2013?  Beginning in 2014, individual and small group carriers will need to produce premiums for a consumer with average health risk or morbidity rather than based on the risk they typically enroll.  At the end of 2014, revenue will shift from carriers who have populations with lower than average risk to carriers who have populations with above average risk.  If carriers with low risk populations haven’t set 2014 premiums with their relative risk scores in mind, those carriers won’t theoretically have enough cash to fund the payments going to carriers who enrolled high-risk populations.

And that’s where risk adjustment simulations come in.  Running simulations in 2012 and 2013 will be essential for carriers to know how to price their 2014 products in 2013.  While Medicaid managed care organizations in some states may be familiar with risk adjustment, most commercial carriers have nothing more than guesses regarding how the risk of their enrolled commercial populations compares to other carriers.

And that brings us back to the Big Top. Who funds this important simulation work, and what happens if it doesn’t get done? There are federal grant dollars available for this work.  However, states are wrestling with the idea of asking for federal funding in light of the Supreme Court hearing of the constitutionality of the ACA.  And there’s another kicker – unless the feds extend the deadline for the initial Level I grant applications, this money needs to be requested by states by December 31, 2011.  State politicians have been walking the tight wire holding barbells trying to decide between A) asking for money that can be used for planning but would potentially be wasted if the ACA gets repealed versus B) not asking for money and being too late to

The trouble is if you’re riding a unicycle and the tire goes flat, options are slim.

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One response to "Come one, come all! Actuaries as ringmasters"

  • Tom Bakos says:

    I guess all this proves is that “ACA” is an oxymoron.

    The best thing that can happen is if ACA is reprealed or, at least, ignored and, I suspect, that is what most are hoping for.

    With respect to insurers, can’t they just leave the market and avoid the “risk adjustments” – whatever they are? Perhaps that is the intent. Risk adjustments as you describe them seem to make the basic premise of well underwritten private insurance irrelevant. What exactly is the point of participating in a disfunctional market like that?

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