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CMS' Risk-Adjustment Costs CareConnect an Estimated $53M in First Half of 2016

Changes needed in program’s flawed methodology to make ACA health plans sustainable

Terry Lynam, 516-321-6702, tlynam@northwell.edu

August 31, 2016 - 10:31 am

Northwell Health President & CEO Michael Dowling and CareConnect President & CEO Alan Murray today issued the following statement regarding Northwell’s six-month financial report, which reflects concerns about the long-term financial sustainability of CareConnect if the federal government does not modify the Affordable Care Act’s risk-adjustment program governing insurers writing individual and small-group health policies.

“Northwell Health’s report on its financial performance in the first half of 2016 shows that its health insurance company, CareConnect, is making a major contribution to the health system’s top line, generating more than $175 million in operating revenue from premiums in the first six months of the year. Unfortunately, CareConnect faces significant financial headwinds as a result of the federal government's flawed risk-adjustment program, which will require the company to pay $53 million for the first half of this year alone to the US Centers for Medicare and Medicaid Services (CMS) in 2017. As a result of the risk-adjustment payment, CareConnect reported a $46 million operating loss for the first half of 2016, ending June 30.

“Northwell Health and CareConnect have been working closely with the US Centers for Medicare and Medicaid Services (CMS) and the state Department of Financial Services (DFS) on solutions to the current risk-adjustment program. We are in the process of evaluating the 293-page document issued by CMS on Monday that includes proposed changes to the risk-adjustment program that would generally take effect in 2018. However, more immediate and robust changes are needed.

“While we remain hopeful for a positive outcome in 2017, Northwell may reconsider its future participation in certain insurance products or the insurance market overall if a viable solution is not put into place. The financial consequences of the risk-adjustment program, as currently structured, are simply unsustainable for CareConnect and other small companies that began enrolling customers on and off the health exchanges as part of the Affordable Care Act in 2014. Northwell Health continues to believe in the strategy of CareConnect and the benefits that come from a provider-owned insurance company. We are hopeful that state and federal regulators also recognize the value we bring to consumers as one of the most-affordable health plans for individuals, and small and large businesses, and are prepared to correct the program’s inequities.

“The risk-adjustment program is intended to transfer premium revenue from insurers with a healthier population to insurers that enrolled a less-healthy population, in order to reduce the financial risk to insurers whose members have costlier and more-complex health conditions.

Unfortunately, because of the risk-adjustment program’s complex and flawed methodology, the goal of ‘leveling the playing field’ has not been achieved and has created unintended consequences here in New York.

“Smaller, newer companies like CareConnect are being ‘taxed’ instead of those with ‘deep pockets.’  In fact, data suggests that New York’s small-group risk scores don’t represent the actual risk of the state’s insured population. Instead, New York's risk scores may actually reflect the market advantage of a dominant carrier. From a consumer perspective, the need to reserve funds for the estimated 2016 risk-adjustment payments (due in 2017) is responsible for much of the increase awarded by DFS to CareConnect’s 2017 small-group rates, which was greater than the request filed by CareConnect -- CareConnect asked for a 17 percent increase and was awarded a 23 percent rate hike.

“CareConnect is one of many insurers adversely affected by the flawed risk-adjustment program—in fact, carriers across the country have called it a burden that needs to be addressed for the health of the exchanges. Our goal is to keep our 100,000 members’ rates low and give New Yorkers what they deserve – access to excellent health care at fair and affordable prices. We simply want a fair and equitable opportunity to break even and eventually achieve a positive operating margin.”