Fallon, two other insurers challenge state's risk adjustment program

Worcester-based Fallon Health and two other insurance plans have asked the state’s Health Connector Insurance Authority to review risk assessment fees that they say could financially impact smaller carriers that participate in the state health insurance exchange.

A requirement of the Affordable Care Act, the risk adjustment program is meant to discourage health plans from avoiding insuring sicker populations by assessing fees that spread the risk among all those insured. According to the Henry J. Kaiser Foundation, risk adjustment transfers funds from plans with lower-risk enrollees to plans with higher-risk enrollees and apply to plans that were renewed in 2014 and later.

Smaller carriers, such as Fallon Health, could pay millions as a result of the program, according to a letter from the chief executives of Fallon, Minuteman Health and Health New England, addressed to Louis Gutierrez, executive director of the Massachusetts Health Connector, and distributed to high-level Massachusetts government officials.

The main argument of the insurance companies is that with the state’s own insurance requirements, most residents have had medical insurance since 2006. The worries of higher-risk populations being denied coverage is not an issue, as those populations are already covered, according to the letter.

“Massachusetts’ risk adjustment program attempts to cure a problem which does not exist, unfairly penalizes smaller regional carriers while benefiting larger carriers and will de-stabilize, rather than stabilize, the merged marketplace,” the letter said.

In fact, according to Fallon, Minuteman and Health New England, this risk adjustment program could cost consumers. The companies hired a national consulting firm, Wakely Consulting Group, to assess the state’s risk adjustment program and its impact on smaller insurance carriers. A summary of the report was sent to Gutierrez as well.

“The overarching goals of the Affordable Care Act are to increase the number of Americans covered by health insurance, and decrease the cost of health care. Wakely’s review of the Program shows that the current structure of the Program will limit choice and increase the cost of care in Massachusetts by raising premiums and decreasing competition,” the consulting group said in the executive summary of the study.

Adjustment notices for 2014 are expected in the next week, according to Robert Nolan, spokesman for Fallon, and insurers are pricing their products based on estimated risk adjustment payments.

Consumers are paying the price of the risk adjustment program, according to the insurance companies.

“Our publicly available premium filings show that risk adjustment, as currently implemented, will significantly increase the cost of our premiums for the third quarter of this year and beyond. As we see in recent news, the largest national carriers are exploring mergers and consolidation, making it more important than ever to assure that smaller, newer and regional carriers remain a strong and affordable alternative in the marketplace,” it said.

Meanwhile, Nolan on Wednesday confirmed a report that Fallon had laid off 30 employees. A statement from the company said provisions of the Affordable Care Act were a factor, among others.

"Lower reimbursement rates, escalating prescription drug and other medical costs, and the implementation of the Affordable Care Act, are creating ever-increasing cost pressures, causing health plans across the country to assess and evolve their businesses. As a not-for-profit plan, we have a particular obligation to the communities we serve to continually scrutinize and manage our organizational structure and key business processes to ensure we are operating as efficiently and effectively as possible," the statement said.

The employees who lost their jobs were "provided assistance, " Fallon said.

Remedies requested

To help alleviate the burden of the risk adjustment program, the companies request in the letter that Gutierrez review the Wakely report and postpone risk assessment fees for one year while considering other remedies to reduce the impact on small health plans, including: Phasing in risk adjustment fees based on the size of the carrier to provide smaller plans more time to absorb costs; capping risk adjustment fees so they don’t “unduly harm” carriers; excluding smaller carriers entirely or limiting their involvement in the program; and excluding new carriers until they’ve reached certain enrollment benchmarks.