February 3, 2014

The “Three Rs” of Health Reform

In January 2014, the Kaiser Family Foundation published a brief that explains the “three Rs” of the Affordable Care Act’s health insurance marketplaces: risk adjustment, reinsurance, and risk corridors.  These three “Rs”are meant to mitigate any potential effects of adverse selection and help stabilize premiums in the early years of health reform.  The brief explains each.  Specifically, risk adjustment is designed to mitigate incentives for plans to attract healthier individuals and compensates those health plans that enroll a disproportionately sick population. Reinsurance compensates plans for high-cost enrollees over a three-year period.  And, risk corridors reduce the general uncertainty insurers face in the early years of reform when the marketplace is opened up to people with pre-existing conditions who were previously excluded from coverage.