Risk Adjustment and Reinsurance Under the ACA: New York State Recommendations

This Wakely Consulting Group report, supported in part by NYHealth, examines New York’s options and makes recommendations for its risk adjustment approach under health reform.

To mitigate the potential consequences of adverse selection–where certain health plans attract a disproportionate share of the sickest, and most expensive, patients–and assure a stable and robust health insurance market, the Affordable Care Act establishes a risk adjustment program. States’ current risk adjustment methods vary, but all intend to smooth out the financial risk across the plans, offset the costs to plans that carry a disproportionate share of high-need patients, and stabilize insurers’ market participation.

Although the Federal government offers a recommended approach, states have wide latitude and discretion in meeting the Federal standards and have an opportunity to formulate their own approaches. Identifying the best approach for New York has been complicated by the fact that New York has pursued different risk adjustment methodologies in the past.

This report provides explicit direction and recommendations for New York’s risk adjustment approach.