CurrentMedicarePolicy N/A

Alabama small group risk adjustment transfer modification request

Letter from the Alabama Department of Insurance asking HHS/CMS to continue approving a policy that halves calculated risk adjustment transfers for the small group market in Alabama; affects small group issuers operating in Alabama.

Policy Summary

PayerMedicare

PolicyAlabama small group risk adjustment transfer modification request

Policy CodePolicy N/A

Change TypeRequest to reduce calculated small group risk adjustment transfers by 50% (plus administrative cost reduction) for Alabama small group market

Effective DateN/A

Next Review DateN/A

Key ActionRequest to HHS/CMS to continue approval of a 50% reduction in calculated small group risk adjustment transfers for the 2023 benefit year.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

50%requested reduction in calculated small group risk adjustment transfers

4%estimated premium impact for a small receiver carrier in 2020

1%de minimis premium-impact threshold referenced

4issuers in Alabama small group market (2017–2020)

State Request and Justification

Alabama small group risk adjustment transfer modification request

State justification and requested condition for approval:

State request: Continue approval to reduce calculated small group risk adjustment transfers by 50% (plus administrative cost reduction) for the Alabama small group market, extended for the 2023 benefit year.

Rationale: The national risk adjustment program produces imprecise results in Alabama’s small group market due to market concentration (a dominant carrier), small numbers of issuers, and volatile experience (especially in anomalous years such as 2020).

Evidence: Tables from issuer Supplemental Health Care Exhibits (SHCEs) and the CMS Summary Report on Permanent Risk Adjustment Transfers illustrating premium, claims, and transfers for four issuers (2017–2020) were submitted to show the financial impact of a 50% transfer reduction.

De minimis impact test: The state used the federal 1% of premium de minimis test but argues the test is not appropriate when a small‑market‑share carrier is the receiver; Alabama reports a 50% reduction produced de minimis impacts for 2018–2019 but could produce approximately a 4% premium impact for a small receiver in 2020.

Policy Summary

PayerMedicare

PolicyAlabama small group risk adjustment transfer modification request

Policy CodePolicy N/A

Change TypeRequest to reduce calculated small group risk adjustment transfers by 50% (plus administrative cost reduction) for Alabama small group market

Effective DateN/A

Next Review DateN/A

Key ActionRequest to HHS/CMS to continue approval of a 50% reduction in calculated small group risk adjustment transfers for the 2023 benefit year.

SourceLink

On This Page

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Credibility/temporal considerations: The state contends CMS rules permit using multiple years of experience (not only 2020) because 2020 was likely an anomaly (COVID‑19); small carriers’ experience is not a credible sole basis for transfer decisions and multiple years should be used to increase credibility.

Conditional request and market impact: If the modification is not approved, the state predicts market consolidation to two corporate groups; approval of the modified transfers is requested to preserve the current market structure.

Regulatory Thresholds and Tests

De minimis premium-impact threshold

Federal de minimis threshold1% of premium (federal test referenced)

State critique of 1% testAlabama argues the 1% test can be inappropriate when a small-market‑share carrier receives transfers because small membership can produce volatile, non‑credible results.

Observed exceptionsA 50% reduction produced de minimis impacts for 2018–2019 but could exceed 1% (~4%) for a small receiver in 2020 due to pandemic effects.

Use of multi‑year experienceState recommends considering multiple years (not relying solely on 2020) to increase credibility when applying the de minimis test.

Requested Action to HHS/CMS

Prior Authorization

State request to continue 50% reduction in small group transfers

The Alabama Department of Insurance requests that HHS/CMS continue to approve a 50% reduction in calculated small group risk adjustment transfers (in addition to administrative cost reductions) for the Alabama small group market, extended to the 2023 benefit year.

Request repeats prior petitions (initial request Nov 27, 2017) and follows approvals for benefit years including 2020–2022.
State argues the national risk adjustment program produces imprecise results in Alabama and that a 50% reduction would provide additional market stability.

Operational Definitions (Premium, Claims, Transfers)

Premium (definition and source)

Source field for premiumPremium is developed from Part 1, line 1.1 of the SHCE with adjustments to remove risk‑adjustment accruals.

Adjustment noteAdjustments remove risk adjustment accruals as identified in the table following Part 1 of the SHCE.

Data provenanceData taken from issuer SHCEs published by the NAIC and used in state analyses.

Claims (definition and source)

Claims sourceClaims are taken from Part 1, line 5.0 of the SHCE.

Claims provenanceClaims data originate from issuer Supplemental Health Care Exhibits (SHCE) reported to the NAIC.

Usage in analysisClaims from Part 1, line 5.0 are used along with premium and transfer data to evaluate transfer modifications.

Transfers (definition and source)

Transfers sourceTransfers are taken from Table 4 of section VI of the CMS Summary Report on Permanent Risk Adjustment Transfers.

Report identitySummary Report on Permanent Risk Adjustment Transfers published by the Center for Consumer Information and Insurance Oversight (CCIIO/CMS).

Role in state submissionTable 4 transfers are combined with SHCE premium and claims to calculate and justify the requested transfer modification.