Obamacare may turn traditional health insurance risk management upside down and make the elderly, women, babies and people with medical conditions the most profitable enrollees, according to new analysis by Milliman, one of the world's largest actuarial firms.
The reason, analysts say, is the "3Rs" — transitional reinsurance and risk corridor programs and a permanent risk adjustment mechanism — intended to help insurers through the industry's big market shift. Generally speaking, they say analysis shows the results of the 3Rs will be "the precise opposite of what one would expect without these programs."
"There is a general understanding that the 3Rs will create winners and losers among health plans. What is surprising, though, is how skewed the results can be," analysts say. "There may no longer be the same incentive to attract the 'young invincibles' to help pay for older members. It may actually be a detriment if a company insures a large proportion of young policyholders."
Analysts note that the scenarios are based on a standard mix of members ranging from young to old and healthy to unhealthy, and that it is based on the program's 2014 parameters. Transitional reinsurance is expected to phase out in 2015 and 2016, and risk corridors are also supposed to cease in 2017. However, they say, risk adjustment is the primary driver of the results and is a permanent feature of the law.