Adverse selection, when healthy and less healthy individuals differentially select health plans according to their health needs, is a serious risk to insurance markets and prevention is critical to ensuring a stable, well-regulated market.

*Milestone details:

*Full name: Analyze possible sources of adverse selection in the exchange and adopt strategies designed to mitigate that risk.

*Relevance to the ACA:
The ACA has many provisions intended to prevent adverse selection. Plans that offer insurance through an Exchange face requirements designed to alleviate adverse selection, but plans outside the Exchange face fewer rules. Sections that relate to potential adverse selection include:

§1301 - Requires plans offered in the Exchange to offer at least a silver and gold plan and to charge the same prices for the same products inside and outside the Exchange.

§1312 - Establishes consumers’ rights to enroll in any qualified health plan, regardless of whether the plan is offered through the Exchange.

§1341 - Requires states to establish or contract with a non-profit reinsurance entity to carry out the reinsurance program and to adopt specific federal standards related to the program.

§1343 - Requires states, in conjunction with the Secretary of HHS, to establish criteria for risk adjustment and to conduct risk adjustment for plans in the individual and small group market. States will assess a charge on low actuarial risk plans and make a payment to high actuarial risk plans.

§1401 - Establishes refundable premium tax credits for individuals at or below 400% FPL and makes the Exchanges the vehicle for receiving the credits.

§1501 - Requires individuals to maintain minimum essential coverage or face a tax penalty, unless they qualify for a financial or religious exemption.