With healthcare reform moving full speed ahead, the individual and small group markets will experience changes and challenges starting in 2014, including the introduction of risk adjustment and transfer payments for non-grandfathered plans.

Part of the healthcare reform legislation mandated that the U.S. Department of Health and Human Services (HHS) establish a transfer payment methodology between plans in these markets to help mitigate differences in the risk characteristics of members. The transfer payment methodology results in transfers between carriers on a zero-sum basis—if a plan is receiving a payment, that payment must come from another carrier. Carriers will have to submit accurate diagnosis codes to HHS to ensure their risk scores reflect the actual risk of their population.

This paper addresses both the operational challenges of submitting diagnoses and how the transfer payment will work, as well as key questions insurers need to be asking in order to be successful in the new environment.