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Opportunities for Kaiser Permanente When Reinsurance Ends in 2016

by John Hansen

The reinsurance stipulation of the Affordable Care Act comes to an end in 2016. This could prove advantageous for Kaiser Permanente, who tends to only be hurt by reinsurance.

Reinsurance was designed to decrease the risk of carriers getting too many high cost enrollees. In reality, it decreases the risk not only of adverse selection, but also the risk of poor management of a health plan.

Reinsurance required health insurance carriers with lower risk enrollees to give funds to other carriers who had higher risk enrollees. The assumption was that this stipulation would decrease the carrier’s fears of Health Care Reform causing them to get an adverse selection of new members, which would increase their risk and their costs.

Reinsurance Rewards Poorly Managed Health Plans

Kaiser Permanente argued the obvious from the beginning: Higher risk pool is not only created by adverse selection, but it is also created by poor health plan management. The better you service your clients and get them to do their checkups and maintain their health, the more likely you are to have fewer high risk enrollees.

Since Kaiser is king of member management, they have been better able to keep their members from dropping into the high risk pool. But rather than getting rewarded for this, reinsurance actually punishes Kaiser Permanente by forcing them to pay out funds to carriers with greater numbers of high risk members.

Reinsurance Ends and Opportunity for Kaiser Permanente Begins End of 2016

At the end of 2016, reinsurance comes to an end. Then, Kaiser Permanente will not have to pay out as much of its surpluses to fund other health plans. Some payouts will still continue with Risk Adjustment, which according to the Affordable Care Act continues on permanently.

However, reinsurance will cease, and that should allow Kaiser Permanente to reap more of the rewards of their streamlined, integrated HMO, instead of having to bail out less efficiently run health plans.