Tennessee: IMPORTANT: BCBSTN baking in #RiskAdjustmentFreeze based on lost *2019* revenue, not 2017

A few days ago I noted that Blue Cross Blue Shield of Tennessee, which holds over 50% of TN's ACA-compliant individual market, specifically noted in their individual market rate filings that while they're lowering rates by 10.9% on average in 2019, they had been planning on lowering rates considerably more prior to the bombshell announcement that CMS has decided to "freeze" Risk Adjustment fund transfers for an unknown period of time. Specifically:

“Our rate reduction would have been larger, but we had to account for added uncertainty in our rates due to indefinite suspension (the U.S. Centers for Medicare and Medicaid Services) placed on risk adjustment transfers between insurers,” said , said Mary Danielson, a BCBST spokeswoman. “Again, we were planning a larger reduction – around 18 percent – but needed to factor in the prospect of greater costs for 2019.”

I crunched the numbers and estimated that, assuming the Risk Adjustment (RA) issue isn't resolved before the 2019 final rate change deadline, and assuming BCBSTN's requested rates including the RA losses are approved, unsubsidized BCBSTN enrollees are looking at having to pay roughly $649 more apiece next year than they otherwise would have to pay.

However, I made one important error which needs to be addressed, and which underscores why the RA Freeze issue is potentially even a bigger headache than many already thought.

I received the following correction/clarification this morning from the very same Mary Danielson of BCBST quoted above:

Our rate proposal assumes we will not receive risk adjustment payments for 2019, and it is not designed to recoup money from previous years for the program.

Here's what Ms. Danielson is referring to: Under the ACA, when submitting rate filings for the upcoming enrollment period/calendar year, insurance carriers are only supposed to include increases in their upcoming expenses/costs. They aren't supposed to try and "make up" for losses in earlier years.

For instance, let's suppose BCBSTN had exactly 100,000 enrollees in ACA-compliant individual market policies in both 2015 and 2016. Let's say they lost $48 million in 2015 (an avg. of $480 per enrollee, or $40/month each). When they submitted their 2016 rates, they were allowed to increase prices based on what they expect their costs to be in 2016, which may include rising claims, higher taxes/fees and so forth...but they are not allowed to tack on another $40 to make up for their losses the prior year.

The same holds true with the RA program. Most carriers, healthcare wonks and so on are hoping CMS will go ahead and "unfreeze" the 2017 RA fund transfers, but there's always the possiblity that they won't do so until after 2019 Open Enrollment starts...or until 2020. Or 2021. Or, potentially, ever, depending on how things play out.

If this sounds unlikely ("surely they'll sort this out eventually!"), just take a look at where the Risk Corridor Massacre ended up. Not a pretty sight.

When I wrote up my post the other day, I noted that the dollar amount added up to around $73.3 million, and figured this referred to the $75.8 million BCBSTN is already owed for 2017 (I assumed a rounding error accounted for the difference between the two). I knew that the ACA didn't normally allow carriers to do that, but given the sticky legalities involved (as well as the nature of the RA program and the timing of the funds involved), I figured that BCBSTN might be challenging the "no recouping of losses" rule legally given the circumstances. Alternately, I figured they might be baking the extra ~$73M into their filing as a purely symbolic act, although I'm pretty sure actuaries aren't known for doing things like that just to make a point.

However, as Ms. Danielson made clear this morning, I misunderstood. Re-reading the relevant portion of the filing (reposted below), it's obvious that they're talking about 2019, not 2017.

BCBSTN makes it very clear that they CMS has pretty much lost any credibility in this area based on similar prior incidents (Risk Corridors in 2014/15/16, Cost Sharing Reductions in Q4 2017 and all of 2018, and now the Risk Adjustment Freeze) so BCBSTN is pretty much operating on the assumption that not only is there a good chance they're gonna have to eat the $75.8 million they're already owed for 2017, there's a good chance they'll be stiffed for a similar amount in 2018 as well. They aren't legally allowed to do much about either of these years (that's around $150 million...ouch!)...but they're taking no chances of being stuck with the bill for 2019 or beyond:

In accordance with the HHS payment transfer formula, BCBST risk adjustment estimate is based on expected future market dynamics. Total Market membership and the proportion expected to enroll in BCBST are projected. Then, risk scores are estimated for each future enrollee in the Individual ACA market. The overall risk score for BCBST is compared to the overall risk score in the expected market. The variance between BCBST risk scores and other issuers in the market is used to calculate the risk transfer payment. Therefore, the 2019 projected risk adjustment payment is $54.94 per member per month.

Under the single risk pool pricing requirements, adjustments for expected Risk Adjustment payments (or charges), are made as a market-wide adjustment to the projected Index Rate. Due primarily to (1) the uncertainty introduced by CMS’ decision to freeze risk adjustment transfers and (2) the historical precedence of CMS decisions in other ACA cases involving the outlay of federal funds, no risk adjustment transfers were assumed for the 2019 benefit year. Thus the only amount applied to the projected index rate is the Risk Adjustment fee of $1.80 per member per year, which is $0.15 per member per month.

To the best of my knowledge, BCBSTN is the only carrier to request loading 2019 Risk Adjustment funds into their 2019 rate filing, but I wouldn't be at all surprised if some other carriers don't follow their lead. It's kind of awkward to do, because the nature of the RA program means that a carrier could be owed money one year but owe money the next. BCBSTN seems to be pretty confident that they're gonna be owed roughly $73M or so next year, but they could end up being wrong; it could be more or less than that, or it's conceivable (if unlikely) that they'll actually owe money back into the RA program if they completely misread the 2019 market.

All of this is exactly why it's so critical that the RA issue be resolved sooner rather than later.