A New Obamacare Proposal Might Not Be Legal–Collateral damage from the illegal part of the proposal-part 2 of 4

A New Obamacare Proposal Might Not Be Legal–Collateral damage from the illegal part of the proposal

part 2 of 4

It gets worse. The ACA wove a tangled web. As a result, there is collateral damage from the illegality. Ready for this?

In order to compensate for the creation of a national reinsurance pool, CMS fiddled with the way it it is going to compute Risk Adjustment for 2018. Basically, the way it operates now–and continues to operate–CMS computes a score for about 200 medical conditions (“hierarchical condition codes”). The higher the expected expenses associated with the condition, the higher the score. The higher the scores of the insureds covered by an insurer, all else being equal, the more that insurer gets from other insurers in risk adjustment payments. But now, because some of these expenses will be shifted into the national reinsurance cooperative, CMS felt it has to adjust (downward) the score for those high-cost conditions. Conditions like diabetes without complications won’t get much of an adjustment: standing alone, they never cost more than $2 million to treat. Conditions that can occasionally get really expensive, however, will get adjustments. An intestine transplant that used to be a “42″ because these was some chance expense could exceed $2 million might now be a 32 because 60% of those over-$2 million charges would be shifted to the national reinsurance pool.

But what happens when many of the insurers who hate the Risk Adjustment program refuse to pay because the national reinsurance cooperative created by CMS is illegal? The mathematical elegance of CMS’ downward adjustments now backfires. Those insurers who actually have attracted insureds who need intestine transplants–perhaps by having a great network of specialty hospitals–will end up undercompensated for the risk they assumed. Their 42 that may have cost them a lot of money has been scored as a 32.

Can CMS Fix It? Yes It Can

The most glaring legal flaw with the CMS proposal can be reduced by just treating each state as a separate pool , the same way it has been done for the past three years. Each state could have its own reinsurance cooperative. CMS would base assessments within each state simply on large claims within the state. The math is identical to that under a national reinsurance cooperative.

There are, however, downsides to the fix, which may explain CMS’ reluctance to follow the law. The first is that it takes two to co-op: State-based reinsurance cooperatives don’t work where there is only one insurer in the state.  That may be the case a lot in 2018.

The second downside of following the law is that the tax likely to be imposed in each state is less predictable. If all insurers nationwide pool their high-expense claims, insurers can rely on the law of large numbers to predict pretty well what the tax is going to be on each of them. Not so much with state-based cooperatives.  One insurer having a few really expensive insureds can leave the one or two other insurers in the state with a larger-than-expected bill.

The third downside is that it is unfair to the states in which medical care is cheaper.  Insurers and, derivatively, insureds in those states that manage not to have $2 million plus cases end up subsidizing insurers and insureds in those states that do.  A reluctance to facilitate this sort of cross-subsidization may well have motivated Congress to originally choose state-compartmentalized Risk Adjustment when it passed the ACA in the first place.

But the pros and cons of a national reinsurance cooperative don’t matter that much for now.  Until the ACA is amended, it is unlawful. Rather than further mess up Risk Adjustment by saddling it with a meritorious lawsuit, CMS would be well advised to accept the any modest disadvantages of doing the computations state by state if it wants to convert its Risk Adjustment program, at least in part, into a new reinsurance scheme.

Sep 1, 2016 @ 08:42 PM 20,720 views The Little Black Book of Billionaire Secrets

source–cms, the aporthecary, seth chandler, forbes, mccarran ferguson act

 

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