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 Affordable Care Act provisions 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.