Key Updates in the 2026 Risk Adjustment Program

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On October 4, 2024, the Department of Health and Human Services (HHS) released a proposed rule detailing the 2026 HHS Notice of Benefit Payment Parameters, along with updates related to the Basic Health Program. This blog highlights key provisions affecting risk adjustment programs in the individual and small group markets, which are crucial for ensuring that health plans are properly reimbursed based on the risk profiles of their enrollees. The rule also presents new factors that could influence the calculation of future risk scores.

Key Proposals in the 2026 Risk Adjustment Program

HHS plans to largely maintain its existing risk adjustment policies but introduces two key updates. First, it proposes incorporating HIV pre-exposure prophylaxis (PrEP) into enrollee risk scores. Second, HHS seeks public feedback on accounting for the time value of money within the risk adjustment program.

Annual Calibration of Risk Score Models

Risk adjustment programs use predictive models to assign risk scores to enrollees based on factors like age, sex, and health conditions. For the 2026 benefit year, HHS plans to continue calibrating its models using data from the External Data Gathering Environment (EDGE). The data will cover enrollees from 2020, 2021, and 2022, and HHS will project spending trends forward to 2026. According to HHS, there are no anomalies in the 2022 EDGE data that could distort the model, and the COVID-19 pandemic did not significantly impact claims spending for different enrollee types in 2020 and 2021.

HHS also proposes phasing out the special trend factors used to adjust spending for Hepatitis C drugs. Previously, these drugs had exhibited slower price growth compared to other specialty drugs. However, HHS now expects Hepatitis C drug prices to follow more general specialty drug price trends moving forward. The proposed changes would be implemented gradually, starting with the 2026 benefit year.

Accounting for PrEP in Risk Adjustment

One of the notable changes is how PrEP will be factored into risk scores. Because PrEP is a preventive service without a corresponding diagnosis, it currently falls outside the scope of existing risk adjustment models. To address this, HHS proposes creating a new class of predictor variables called "affiliated cost factors" (ACFs), with PrEP being the first service included. This change aims to help issuers recover the costs associated with enrollees who use PrEP, reducing the risk of limiting access to the medication.

HHS is seeking input on several technical details regarding the inclusion of PrEP in risk adjustment. For instance, it asks whether the ACF should apply only to brand-name PrEP or also include generic versions, which could influence the cost predictions and prescription practices. The agency is also considering how to account for manufacturer rebates when estimating the cost impact of PrEP.

Time Value of Money in Risk Adjustment

HHS is also interested in how the "time value of money" affects risk adjustment transfers. Currently, these transfers occur 8 to 10 months after the benefit year ends. This delay benefits issuers with below-average risk, as they can invest premium revenues before making risk adjustment payments. HHS seeks comments on how to adjust for this time lag, especially as higher interest rates increase the financial consequences of the delay.

Other Proposed Changes

HHS also outlines proposed updates to its risk adjustment data validation (RADV) program. The changes include revising how enrollees are selected for audits and improving the precision of validation estimates while reducing administrative burdens on issuers.

Finally, HHS proposes changes to the Medical Loss Ratio (MLR) calculation. Specifically, for issuers whose risk adjustment receipts equal 50% or more of premium revenue, HHS plans to stop subtracting net risk adjustment receipts from the MLR numerator. This change aims to prevent certain issuers from having to pay excessive MLR rebates.

So What Now?

HHS's proposed rule for the 2026 benefit year introduces important updates to the individual and small group market risk adjustment programs. By incorporating PrEP into risk scores and addressing the time value of money in risk adjustment transfers, the agency aims to refine how issuers are compensated. Additionally, the phased changes to how Hepatitis C drugs are treated in trend factors reflect ongoing efforts to ensure the accuracy and fairness of the program. As HHS solicits public feedback, these proposals may evolve further before being finalized.

 
 

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Blog by: The ForeSee Medical Team