For those states establishing Affordable Insurance Exchanges (Exchanges) under the Patient Protection and Affordable Care Act of 2010, All Payer Claims Databases (APCD’s) can provide much of the data needed for two of the key components of an Exchange: a transitional reinsurance program and a permanent risk adjustment program. Both are critical to minimizing the effects of adverse selection that may occur in the initial years of operation of and during implementation of market-wide insurance reforms.

Transitional Reinsurance Program
The purpose of a transitional reinsurance program is to help stabilize premiums for coverage in the individual market during the years 2014 through 2016. The transitional reinsurance program is an important element in helping states to level the playing field across the non-group health insurance market, to moderate premium changes from the implementation of insurance reforms both inside and outside of Exchanges, and to set the foundation for the establishment of the Exchanges. Under this program, reinsurance would be based on high cost enrollees’ claims, and not on a list of medical conditions. The data contained in APCD’s can be utilized to establish the attachment points of the high cost enrollees and help to better define the upper limits of the coinsurance amounts.

In a May 31, 2012 bulletin, entitled, Transitional Reinsurance Program: Proposed Payment Operations by the Department of Health and Human Services, HHS suggested that in order to derive the reinsurance payment calculations, a minimum amount of data is necessary, which would contain the following:

All of the data elements suggested by HHS reside in a typical APCD and would be available for most commercial health care payers operating in a state. To minimize the data collection burden, HHS would like to leverage commonly used data elements from existing claims data standards. This could be accomplished in a comprehensive cost-effective manner with data provided by an APCD.

Permanent Risk Adjustment Program
Another component of the ACA critical to the successful establishment of Exchanges is the establishment of a risk adjustment program, which will be used to adjust premium rates for differences in the underlying morbidity of a health plan’s membership. Morbidity can be measured using risk adjustment software. These tools use some combination of information including diagnosis data, demographic (age and gender) information, and the types of prescription drugs that someone may be taking to estimate the morbidity of that person. Prescription drug data will probably not be used in the initial HHS model as a predictor but will in future versions. Data availability and quality are of critical importance to the successful utilization of these tools. Actual costs are not used to measure or predict morbidity although they are used to develop relative payment weights for severity of illness (‘case mix’) calculations. All of these data are commonly found in APCD’s.

Additionally, on March 23, 2012, HHS published a final rule entitled, Standards Related to Reinsurance, Risk Corridors and Risk Adjustment Final Rule (45 CFR Part 153), which requires a state to collect risk adjustment data if it is operating a risk adjustment program (specifically, § 153.340). The original draft of these rules specifically allowed a state to seek an exemption if it had an APCD in place by January 1. 2013. This language was removed because it was believed to be too restrictive. A state can now utilize data from an APCD at any time in the future as long as there are sufficient data collected calculate individual risk scores generated by the risk adjustment model in the applicable Federally certified risk adjustment methodology. This requirement can be met by the data collected for a typical APCD.

The HHS approach to calculate payments and charges for the risk adjustment program includes the development of plan average actuarial risk factors. The creation of the risk factors depends upon comprehensive and accurate data from all health plans and is best carried out in a consolidated manner, which is what an APCD can provide.

In an effort to support the establishment of Exchanges and to provide for more accurate transitional reinsurance programs and a permanent risk adjustment programs, HHS has approved significant funds as part of their Exchange planning grants for states to establish APCD’s. The funding has covered the costs of the APCD IT infrastructure (facility, maintenance, and operation), and the development costs to accept and process commercial claims and Medicaid data, build master provider and patient indexes, and to link data across payer sources.

Many states that elect state risk adjustment will elect to outsource portions of the risk adjustment program, including the hosting and maintenance of the data warehouse, ongoing reporting and analytics, as well as the development and ongoing updates of risk adjustment.