Risk Adjustment for Plans in Individual and Small Group Markets

(Note : For the next few weeks, Health Reform Talk will focus on detailed explanations for specific provisions in the new health reform law. Click here for previous post.)

So what’s included in Sec. 1343 of the Affordable Care Act, concerning risk adjustment in the individual and small group market?

The Patient Protection and Affordable Care Act requires states to assess a charge on health plans and health issuers in the event that the actuarial risk of the enrollees in such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in the state for the year that are not self-insured group plans.

Alternatively, states would be required to provide a payment to health plans and health insurance issuers if the actuarial risk of the enrollees in such plans or coverage for the year is greater than the average actuarial risk of all enrollees of such plans and coverage in the state for the year that are not self-insured group health plans.

Risk adjustment limited to plans in individual and small group markets. The assessment on low actuarial risk plans and the payments to high actuarial risk plans is limited to plans in the individual and small group markets. However, the risk adjustment will not apply to a grandfathered health plan or to the issuer of a grandfathered health plan with respect to that plan.

Risk adjustment criteria. The criteria and methods to be used in implementing risk adjustment are to be developed by the Department of Health and Human Services in consultation with the states. The methods and criteria may be similar to those utilized under the Social Security Act, governing the Medicare Choice Program and the Prescription Drug Benefit Program.

Effective date. No specific effective date is provided by the Act. The provision is, therefore, considered effective on the date of enactment (March 23, 2010).

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