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REINSURANCE AND RISK ADJUSTMENT
Temporary Individual Market Reinsurance Program
For the years 2014, 2015 and 2016, States will be required to establish a temporary reinsurance program. The intent of the program is to help stabilize premiums for coverage in the individual market in a State during the first three years of operation of the exchanges.
Health insurance issuers and third party administrators of self-insured health plans will be required to make payments to the program for each of its years in operation. Contribution amounts will be based on the percentage of revenue for an insurer or the total costs of providing benefits to enrollees in self-insured health plans.
The reinsurance program will make payments to issuers that cover high-risk beneficiaries in the individual market (excluding grandfathered plans).
Risk Corridors
A temporary risk-adjustment program will be established for the first three years of implementation of the exchanges (2014-2016). Qualified Health Plans offered in the individual and small group markets will participate in a payment adjustment system based on a ratio of allowable costs to collected premiums.
Plans will receive payments from the program if;
- Their allowable costs for a plan year are between 103% - 108% of their collected premiums. They will receive payments of 50% of costs that exceed 103%
- Their allowable costs for a plan year exceed 108% of their collected premiums. They will receive payments of 2.5% of their allowable costs plus 80% of those costs that exceed 108%
Plans will make payments into the program if:
- Their allowable costs for a plan year are less than 97% of allowable costs, but not less than 92% of that amount, the plan will make a payment equal to 50% of collected premium that exceed 97% of those costs
- Their allowable costs are less than 92% of their allowable costs, the plan will make a payment equal to 2.5% of allowable costs plus 80% of those costs that exceed 92%.
Risk Adjustment
Plans (excluding self-insured) with lower than average risk will be required to make payments that will be distributed to those plans (excluding self-insured) that have a higher than average risk of their enrollees.
Such plans will be those non-grandfathered plans that offer coverage in the individual and small group market.
(Please note: This document was produced by the Self-Insurance Institute of America to provide an overview of the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act. It does not cover every aspect of the legislation, and certain provisions of the law may change or be modified by additional rules and regulations. This document does not constitute legal or tax advice.)