Risk adjustment can be an effective mechanism for removing incentives for insurers to pick healthier potential members, and for spreading risk from potentially less healthy members across plans in the individual and small group markets.
*Full name: Develop a plan to adjust risk for qualified plans in the individual and small group markets inside and outside the exchange consistent with federal laws and regulations.
*Relevance to the ACA:
Beginning in 2014, the ACA requires states to risk adjust plans that offer coverage in the individual or small group market within the state, with the exception of grandfathered plans.
§1343 - Requires states in conjunction with the Secretary of HHS to establish criteria for risk adjustment and for the states to carry out the process of risk adjustment for plans in the individual and small group market. States will assess a charge on plans that have lower than the state’s average actuarial risk and make a payment to plans with actuarial risk higher than the state’s average.less