The Affordable Care Act’s Risk Spreading Mechanisms: A Primer on Reinsurance, Risk Corridors, and Risk Adjustment
by Emily Egan, Angela Boothe
American Action Forum
July 31, 2014
The Affordable Care Act (ACA) aims to insure all Americans, regardless of health status. Since private insurers can’t be certain of the health status or previous claims history of the applicants, and since they have little to no control over how many applicants there are or what to charge them, they take a substantial risk by participating in the market at all. To combat this, the ACA imposes a few risk-spreading provisions: temporary reinsurance, temporary risk corridors, and permanent risk adjustment, all of which address potential risk pool issues by limiting the amount an insurance company can lose by participating in the marketplace. It remains unknown exactly what the budgetary impacts of ACA will be, how large the losses will be for private insurers, and whether or not taxpayers will have to pick up the bill on their behalf.