Under the Affordable Care Act (ACA), states must establish Health Benefit Exchanges and Small Business Health Options Program Exchanges (henceforth collectively referred to as "exchanges"). These exchanges will be administered by governmental agencies or non-profit organizations, and will be a conduit for individuals and small businesses to purchase health insurance. Also under the ACA, health plans will be required to issue policies on a guaranteed-issue basis for both exchange and non-exchange offerings. This requirement, combined with restrictions on the variation of premiums across enrollee categories, could result in premiums that may not be fully aligned with risk. Risk adjustment can help produce payments to plans that are more representative of the risk that they bear, and lessen incentives for risk selection.

The Society of Actuaries (SOA) is commissioning a new study focused on risk adjustment as it pertains to the individual and group markets, including risk adjustment modeling as well as qualitative insights on the implications of risk adjustment under the ACA.

The SOA is seeking researchers to demonstrate the potential impact of risk adjustment on health insurance markets as a result of the ACA, using a relevant dataset and a population projection model.

The expected audiences for this research are state officials and administrators, federal officials and administrators, and actuaries assisting states and health entities with respect to insurance plans offered inside and/or outside the exchanges.

The ultimate purpose of this study will be to demonstrate a response to the following question: how well can risk adjustment and other risk-sharing mechanisms capture differences in health risk that are not reflected in premiums?

The following outlines the desired content of the study.

1. Leveraging a relevant dataset or datasets, and a population model, project the population both within and outside of the exchanges, and model the impact of risk adjustment mechanisms.
1. Dataset. An appropriate dataset should be used, relevant to modeling the demographics and health claims morbidity of a potential state insurance market population.
1. The researcher will be responsible for supplying or obtaining all appropriate data; the SOA does not have access to an existing dataset.
2. To the extent that the dataset limits the scope of the projection, consideration should be given to whether the analysis can be enhanced by assumptions and scenarios that enable extrapolation of the data to a wider scope.
2. Population Model. The model (e.g. a microsimulation or similar model) should project the population both within and outside the exchange, over several years.
1. The population modeling should enable projections by various subsets of the population. Such subsets may include, for example: distribution of enrollees inside and outside the exchanges, individual versus group exchanges, health insurance carrier, "metallic" plan categories, family tiers, age, or other categorizations as appropriate.
2. The population modeling may include many scenarios of possible outcomes. The most reasonable of the scenarios should be utilized for application of a risk adjustment model (see 3. below).
3. The development of a population model is beyond the scope of this project. It is assumed that the researcher will either already have, or be able to secure access to, such a model.
3. Risk adjustment modeling. The outputs of the population model should be used to model health claims/morbidity impacts through the application of a risk adjustment methodology, over several years. The risk adjustment modeling should address the following:
1. Modeling the risks and risk scores of the various population subsets outlined in 2a
2. Risk adjustment funds transfer across health plans;
3. Selection and risk issues pertaining to claims and health risk; and
4. The interaction between risk adjustment and the temporary risk-sharing mechanisms (risk corridors and reinsurance).
4. Premium modeling. The risk adjustment analysis should also specifically model the impact of the risk adjustment system on premium rates.
1. The modeling should demonstrate the impacts for the population subsets outlined in 2a.
2. To the extent possible and appropriate, modeling should also take into account federal and state rate review provisions and medical loss ratio requirements.
5. Expansion of analysis. The analysis should be expanded, if possible, in the following areas:
1. to the extent that the dataset used is limited (e.g. to a particular state or demographic group), the results should be extrapolated to a broader population;
2. Potential iterations of the steps outlined above. For example, risk adjustment results may cause a change in expected premiums, which in turn could impact the behavior of the population being modeled into various categories;
3. the impact of allowing larger groups into the exchanges, both in the near term and longer term;
4. the impact of a potential influx of individuals in the future, if larger employers begin to discontinue health coverage; and
5. Other expansions and extrapolations of the analysis, as needed or appropriate.
2. Building on the quantitative results in A. above, provide a qualitative assessment of related issues that are not possible to incorporate into the modeling.
1. The qualitative assessment should include (but is not limited to) discussion of the following:
1. the advantages and disadvantages of the risk adjustment methodology selected in A.3 above;
2. issues related to the portability of individual data when an individual moves from one coverage status, plan or exchange to another; and
3. if it is not possible to extrapolate results to other states or populations (as requested in A.5 above), a discussion of the considerations involved in such an extrapolation should be included.
2. The qualitative assessment may also include additional considerations, such as other issues related to implementation of risk adjustment under the ACA.

For this effort, the SOA has allocated a budget of $150,000 to $200,000, which includes all aspects of the work, including any data and model access fees.

Because of the timelines of the ACA, and the urgency for states to plan and implement exchanges, preliminary results are desired by October 31, 2011, with delivery of the final report to occur by the end of 2011.

To facilitate the evaluation of proposals, the following information should be submitted:

1. Resumes of the researchers, including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the authors as well as for the firm or institution on whose behalf the proposal is submitted;
2. A detailed description of the data to be used, including whether the dataset to be used is considered proprietary or publicly available;
3. An overview of the methodology to be followed to respond to the Objectives;
4. A description of the population model that will be used;
5. A description of the expected report;
6. Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Cost estimates should include (and separately itemize) the costs of other researchers such as researchers involved in population modeling. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor. For this effort, the SOA has allocated a budget of $150,000 to $200,000, which includes all aspects of the work, including any data and model access fees;
7. A schedule for completion of the research, identifying key dates or time frames for research completion and report submission. Because of the timelines of the ACA, and the urgency for states to plan and implement their exchanges, preliminary results are desired by October 31, 2011, with delivery of the final report to occur by the end of 2011; and
8. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The Project Oversight Group (POG) for this project has been appointed and is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals may also be sought, but the POG will make the final decision. The SOA's Research Actuary and the SOA's Health Staff Fellow will provide staff actuarial support.

The SOA desires to foster connections between actuaries and other health-related disciplines. With this in mind, research proposals from non-actuaries and interdisciplinary teams with actuaries are welcome.

Any questions regarding this RFP should be directed by email to either Steven Siegel, SOA Research Actuary (email ssiegel@soa.org, ph: 847.706.3578) or Sara Teppema, SOA Health Fellow (email steppema@soa.org, ph: 847.706.3511).

If you intend to submit a proposal, please e-mail written notification by June 10, 2011 to: Barbara Scott, Society of Actuaries, 475 N. Martingale Road, Suite 600, Schaumburg, IL 60173-2226 or bscott@soa.org, ph: 847.706.3592, f: 847.273.3592.

Please email a copy of the proposal to: Barbara Scott.

Proposals must be received no later than June 24, 2011. It is anticipated that all respondents who have submitted proposals will be informed of the status of their proposal no later than July 15, 2011.

The SOA reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The SOA also reserves the right to redirect the project as is deemed advisable.

The SOA intends to copyright and publish the results of this research. The research will be considered work-for-hire and all rights thereto belong to the SOA. However, appropriate credit will be given to the researcher(s).