CHA News Article

Covered California QHP Payments Included in Report on Transitional Reinsurance, Permanent Risk Adjustment Transfers

The Centers for Medicare & Medicaid Services (CMS) has released the attached report on transitional reinsurance payments and permanent risk adjustment transfers for the 2014 benefit year, making publicly available certain summary and issuer-specific data. According to the report, health insurance companies within Covered California received more than $1.1 billion in reinsurance payments and more than $600 million in risk adjustment transfers.

The report shows that California had one of the lowest average risk liability scores in the country, reflecting that the state’s enrollees are among the nation’s healthiest. Covered California Chief Actuary John Bertko responded to the report by saying, “Covered California made a smart decision to require exchange plans to convert all of their existing products to plans that complied with the Affordable Care Act. Combined with a successful 2014 open enrollment, younger and healthier consumers were brought into the exchange early on.” For a summary of reinsurance and risk adjustment payments and transfers for plans participating in Covered California, visit


The Affordable Care Act established a transitional reinsurance program and a permanent risk adjustment program, two of three of the premium stabilization programs, to provide payments to health insurance issuers that cover higher-cost and higher-risk populations and more evenly spread the financial risk. The reinsurance program, which started in the 2014 benefit year, is designed to provide issuers with greater payment stability, both for the marketplace and outside of the marketplace, as the insurance market reforms are implemented and the marketplaces facilitate increased enrollment. The reinsurance program will help reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers’ claims associated with high-cost enrollees.

The risk adjustment program incentivizes issuers that attract high-risk enrollees (such as those with chronic conditions) to provide coverage with an appropriate level of benefits and services at an affordable premium. The risk adjustment methodology is based on the premise that premiums should reflect the differences in plan benefits, quality and efficiency – not the health status of the enrolled population. The methodology determines each plan’s risk adjustment transfer amount based on the actuarial risk of enrollees, the actuarial value of coverage, utilization and the cost of doing business in local rating areas, and the effect of different cost-sharing levels on utilization. This methodology, which the Department of Health and Human Services (HHS) applied in 49 states and the District of Columbia, transfers funds from plans with low-risk enrollees to plans with high-risk enrollees.

HHS has made a report available to each issuer of a reinsurance-eligible plan that includes the issuer’s total estimated reinsurance payment for the 2014 benefit year, calculated based on the reinsurance contributions HHS has already collected and the contributions that are scheduled to be collected by Nov.15. The report reflects a 100 percent coinsurance rate. HHS has also made a report available to each issuer of a risk adjustment covered plan that will include the issuer’s risk adjustment payment or charge.

Covered California is set to release its 2016 rates at the end of July, and open enrollment for 2016 coverage is scheduled to begin Nov. 1. In the meantime, special enrollment for those who experience a change in life circumstances continues year-round. Medi-Cal enrollment and Covered California for Small Business enrollment also continue year-round.