Blog: Amid ACA Uncertainty, Covered California’s Risk Profile Remains Stable

One of the constant concerns about the Affordable Care Act (ACA) and the status of the exchanges involves the average health status of enrollees in these state Marketplaces. While the ACA has helped reduce the uninsured rate to record lows and increased access to needed care, the law, the Obama administration, and the US Supreme Court granted states flexibility in implementation. States could choose whether to operate a state-based exchange, whether to expand Medicaid eligibility, and whether to immediately transition to ACA-compliant products. The amount of autonomy has allowed some state exchanges to thrive, while other states struggle. Most consumers without premium subsidies faced double-digit premium increases in 2017 as the transitional reinsurance program expired, several states were limited to one insurer in some regions, and in 2018 a handful of counties may be left without even one insurer from which to choose. These shortcomings require attention, to be sure, but do not mean that the “Obamacare” individual insurance market is collapsing.

If the individual market were in a death spiral, one would expect the aforementioned premium increases to create significant declines in enrollment. But as analysis of ACA Marketplaces has shown, during the most recent open enrollment period, there was no relationship between premium changes and sign-up changes, in contrast to the claims of many pundits. In fact, on a national basis, there has only been a slight decline in enrollment in the 2017 open enrollment period (12.2 million in 2017 versus 12.7 million in the same period in 2016), and this may have been the result of the new administration pulling federal exchange advertising in the last two weeks of open enrollment in January 2017.

Since 2014, Covered California, the state’s health insurance exchange, has used statewide hospital discharge and emergency department (ED) data compiled by the Office of Statewide Health Planning and Development (OSHPD) to measure the relative risk of new and continuing members. We built on this work in 2017 to examine the risk scores of enrollees and evaluate the overall health of the California exchange. The most recent open enrollment period for 2017 suggests that Covered California continues to maintain a risk mix of healthy and less healthy individuals that is similar to prior years and, thus, remains stable and strong.

Understanding Risk Scores, Carrier By Carrier

Using individual-level unique identifiers, we combined two data sets: data from Covered California’s enrollment system as of March 2017, and the 2015 data files (the most recent available) from the OSHPD emergency department and inpatient discharge data sets (a statewide encounter database). (Covered California doesn’t have individual-level encounter data for its enrollees, so we needed to merge our enrollee data set with the OSHPD data.) For more detail on how risk scores are derived, see this Health Affairs Blog post from 2015. About 10 percent of 2017 enrollees in Covered California had a hospital discharge or ED visit in 2015, which provides insight into any chronic conditions they may have. For the vast majority of individuals who did not have either a hospitalization or an ED visit with a medical condition in the Chronic Illness and Disability Payment System (CDPS) risk adjustment method in 2015, we derived the risk weights based on enrollees’ age and sex only.

We then standardized the risk scores by dividing the unadjusted score for each health insurance carrier by the average risk score for Covered California’s entire population. The resulting adjusted risk score normalizes the distribution to 1.00 for the Covered California enrollment (but doesn’t include any off-exchange enrollment), such that scores below 1.00 are relatively lower risk than scores above 1.00. Comparing the normalized risk score of enrollees in each of the health insurance plans allowed us to assess any differences in average risk scores across the carriers. Finally, we compared a two-year trend to evaluate how the raw risk scores changed from 2016 to 2017. “Raw risk scores” are the average actual weights based on the medical conditions of enrollees and are not normalized for a given year (such as 2017) to show the relative risk scores across insurers.

This analysis is valuable to both Covered California managers and to the plans in this exchange. By measuring the risk early in 2017, Covered California managers are better prepared to conduct premium negotiations with all 11 plans, knowing their specific risk mixes. The plans each receive confidential information about their own risk mix, so that they can prepare the most competitive but adequate set of premium rates.

The Overall Risk Profile In Covered California

Figure 1 shows the 2016 and 2017 mean risk scores by carrier. Six carriers saw their average risk score decline, four carriers saw their average risk score increase, and one remained the same.

More broadly, the statewide “raw” risk score declined from 1.11 in 2016 down to 1.09 in 2017, indicating that the 2017 enrollee population is slightly healthier with respect to chronic conditions than their 2016 counterparts. Combined, these results reveal encouraging news, for amid talk of death spirals, it suggests Covered California continues to attract a healthy mix of enrollees.