THE 3 R’S: REINSURANCE, RISK CORRIDORS, AND RISK ADJUSTMENT
The need for reinsurance, risk corridors, and risk adjustment have come about due to healthcare reform. These 3 R’s are here to eliminate the health of an individual as a factor in calculating their premium.
Reinsurance and Risk Corridors are only temporary and will be in place from 2014 to 2016.
The one to really pay attention to is the Risk Adjustment Program. This program shifts funds paid by low risk (healthy individuals) to those who are a higher risk (unhealthy individuals). The Health and Human Services Dept. or the states will determine the risk adjustment process for both the Individual and Small Group markets.
The Reinsurance portion of this healthcare reform is in place so that each insurer is insured by another insurer, which enables the ability to insure many people without the risk of not being able to provide the services in each policy.
An example of this would be a small insurance company having policies with a large number of high risk individuals. Now, say all those patients get sick all at once. Perhaps this small insurance company can not provide all these individuals with their benefits by themselves but, by being reinsured through another insurance company or say several insurance companies, that small insurance company is now able to provide those individuals with their benefits because that small insurance company is reinsured with several other insurance companies.
Risk Corridors are in place to prevent inaccurate rate setting by sharing risk, otherwise known as gains and losses, between the Health and Human Services and qualified health plans to create stable premiums.
Basically, the three R’s are in place to stabilize rates so that no one, whether they are sick or healthy, are at a disadvantage when it comes to their premium rates.
If you have any questions or are interested in obtaining health insurance please contact us.
Below is and article from healthnet.com on Reinsurance, Risk Corridors, and Risk Adjustment.
Reinsurance, Risk Corridors and Risk-Adjustment Program
Back in the day, the three Rs were reading, writing and arithmetic. In the world of health care reform, they are reinsurance, risk corridors and risk-adjustment.
The “3Rs,” as they are commonly known, are provisions scheduled for 2014 that concern pooling and risk-sharing. These provisions are intended to remove health status from premium calculations, so that neither individuals nor employer groups who have sick employees are rate-disadvantaged.
Here’s what you need to know:
Reinsurance program. Health and Human Services (HHS) and the states will establish a $25 billion transitional (2014 through 2016) reinsurance program to stabilize the individual market. The program is funded by health insurers and group health plans.
Risk corridors. This provision establishes a risk corridor program for “Qualified Health Plans (QHPs)” in the Individual or Small Group market (2014 through 2016) based on the plan’s ratio of allowable costs to a target amount (modeled on the risk corridors under Medicare Part D for regional PPOs).
Risk-adjustment program. HHS or the states will establish a risk-adjustment process for the Individual and Small Group markets within that state to adjust funds from health plans that serve enrollees with lower actuarial risk to those issuers that serve enrollees with higher actuarial risk.