MLR and Risk Adjustment games (a cynical take)

In Mayhew On Insurance by David Anderson

I was talking with another health insurance nerd last night.  We talked about the risk adjustment pause and a very cynical thought was developed — what if the Center for Medicare and Medicaid Services (CMS) instructs insurers to exclude risk adjustment flows from their Medical Loss Ratio (MLR) calculations that are due on July 31?

MLR requires individual market insurers to spend 80% of their net premium dollars (minus taxes and fees) on claims or qualified quality improvement activities.  Net premiums are after risk adjustment flows.  So insurers that pay out risk adjustment will see their net premiums be lower than their gross premiums.  Insurers that collect risk adjustment transfers will have their net premiums be higher than their gross premiums.

Some of the low morbidity insurers (Centene, Oscar etc) have very significant risk adjustment liabilities as part of their business strategy.  Some of these insurers like Centene pay very little in claims so their raw MLR is low.  It is only with the significant net RA payment that their MLR ratios are near to 80%.

However, if there is no risk adjustment payments, some of the insurers in a net payable position will have to cut some very large MLR rebate checks that will arrive just a few weeks before the election.

This builds on a CSR-MLR thought that I had last fall:

The rebates are sent in the following September after the end of the policy year.

And then in the fall of 2020, ambitious state insurance commissioners will be handing out rebate checks in late September as they are running for Governor or the Senate. Or if they are a bit less ambitious, they are supporting the incumbent party by handing out checks and injecting new federal money into the state and making the fundamental background economic picture a bit better than it otherwise would have been.

I might be getting too cynical today.

The outcome would be a significant front page splash of big federal checks going to people who bought policies from low MLR insurers just before the election.  This may be a cynical take but it is a plausible pathway.