Analysis of HHS Final Rules on Reinsurance, Risk Corridors and Risk Adjustment

This brief summarizes the final rules addressing risk adjustment, reinsurance, and risk corridor programs under the Patient Protection and Affordable Care Act (ACA). Issued March 16, 2012, the final rules implement standards for these programs for states and health insurance issuers. By compensating issuers for the risks related to the individuals they enroll, these provisions are designed to lessen the financial risk issuers and state health benefit exchanges (exchanges) will face under the ACA. This will mitigate the impact of adverse selection and encourage issuers to compete based on cost and quality, rather than attracting the healthiest, lowest-cost enrollees. These provisions are critical to the successful implementation of the ACA’s coverage expansion provisions.

The authors argue that while some critical questions remain, the final rules are logical, providing a good structure for these important programs. They allow states flexibility while still providing federal support. The programs provide significant financial protections which are necessary given the market and financial uncertainties created under the ACA.

This brief is provided by the State Health Reform Assistance Network, a program of the Robert Wood Johnson Foundation, which provides in-depth technical support to states to maximize coverage gains as they implement key provisions of ACA. The program is managed by the Woodrow Wilson School of Public and International Affairs at Princeton University.