When a carrier announces it is leaving an ACA county, the press release says "unsustainable losses" or "market challenges." The actuarial filing with CMS says something more specific. Risk adjustment payment history, the transfers the carrier paid into or received from the pool, is almost always in the analysis. Most brokers never read the filing.
Key Takeaways
- ACA risk adjustment is a permanent program under Section 1343, administered by HHS in the individual and small-group markets.
- HHS transfers funds between carriers within each state market segment. No federal money enters or leaves the pool: every dollar paid out is a dollar paid in.
- The HHS-HCC diagnostic model scores each plan based on enrollee diagnoses plus age and sex factors. Plans with higher average risk scores receive net payments.
- Annual transfers across individual and small-group markets have exceeded $10 billion in recent program years.
- Risk corridors ended in 2016. Reinsurance now operates only through approved state Section 1332 waivers.
What risk adjustment is designed to do
The ACA eliminated medical underwriting. Carriers could no longer charge sick enrollees more or refuse coverage. Without an adjustment mechanism, the rational carrier strategy would be to attract healthy enrollees and avoid sick ones through narrow networks, high out-of-pocket costs, or selective marketing. Every carrier would try this simultaneously, and the market would fall apart.
Risk adjustment addresses the problem by making it financially neutral for a carrier to attract a high-risk enrollee. If a carrier ends up with sicker-than-average members, it receives payments from carriers with healthier-than-average members. The transfers run within each state and within each market segment. Individual market transfers are calculated separately from small-group transfers.
No federal money flows into or out of the pool. Every dollar paid to a high-risk carrier is a dollar paid in by a low-risk carrier. HHS administers the calculation and the transfers. The program is permanent under Section 1343 of the ACA, which means it has no expiration date tied to political cycles.
The HHS-HCC model: how scores are calculated
HHS uses a diagnostic model called HHS-HCC, which stands for Hierarchical Condition Categories. The model groups ICD diagnoses into condition categories ranked by severity. When a claim is filed for a covered service, the diagnosis codes on that claim are mapped to HCC categories, and each category adds to the enrollee's risk score.
The model also accounts for age, sex, enrollment duration, and the plan's metal tier. Bronze plans are expected to attract somewhat healthier enrollees than Gold plans, so the model adjusts for that selection effect. Plans with restricted networks get a separate adjustment as well.
Each plan's average risk score is compared to the statewide market average for that segment. Plans scoring above the average receive net transfers. Plans scoring below the average pay net transfers. The calculation happens after the plan year ends, when actual claims data is available. HHS publishes the transfer amounts annually, typically in the spring following the plan year.
The scale of the program
Annual risk adjustment transfers across individual and small-group markets have exceeded $10 billion in recent program years. The individual market accounts for the majority of that total.
Within any given state, the distribution is often concentrated. A state with five carriers competing in the individual market may see two carriers as consistent net receivers, one carrier roughly at break-even, and two as consistent net payers. The net-payer carriers tend to be the ones with younger, healthier enrollment, often because they priced aggressively to attract that population. Risk adjustment partially offsets the premium advantage they gained by doing so.
Distinguishing risk adjustment from the programs that ended
Three ACA programs addressed carrier risk during the transition to the new market structure. Only one is still running.
| Program | Status | Mechanism |
|---|---|---|
| Risk adjustment | Permanent, active | Transfers between carriers within a state market; no federal funds enter or leave the pool |
| Risk corridors | Ended 2016 | Federal backstop limiting carrier gain and loss; Congress prohibited full funding; carriers received far less than owed |
| Transitional reinsurance | Federal program ended 2016 | Reimbursed carriers for individual claims above a threshold; now available only through approved state Section 1332 waivers |
| State 1332 reinsurance | Active in approved states | Alaska, Maine, Montana, North Dakota, and others operate state-funded reinsurance programs under approved 1332 waivers |
Program status as of 2026. State 1332 waiver programs are updated by CMS approval and may change. Verify current state reinsurance status with your state exchange.
The 1332 waiver reinsurance programs in states like Alaska reduced individual market premiums significantly. Brokers writing in states with active reinsurance programs may notice lower benchmark premiums than neighboring states. The premium reduction is real; it comes from the state-funded reinsurance pool absorbing high-cost claims above the threshold. See the guide to 1332 state innovation waivers for how these programs interact with APTC calculations.
What risk adjustment cannot do
Risk adjustment corrects for the distribution of risk within an existing carrier pool. It cannot create a carrier where one does not exist. In counties with only one participating carrier, risk adjustment is irrelevant because there is no pool of competitors to transfer between.
It also cannot fully compensate for model gaps. The HHS-HCC model is calibrated from prior-year claims data and does not perfectly predict current-year costs for every condition. Carriers serving populations with diagnoses that are systematically underweighted in the model may face persistent net payments even when their actual costs are high. Some carrier exit filings in thin markets cite model accuracy as a contributing concern.
Connecture's enterprise plan comparison tools track network changes and plan design modifications but do not surface risk adjustment payment history as a carrier stability signal. Most quoting tools are the same: they show what a carrier is offering, not how that carrier is performing financially in the risk pool.
Broker action items for thin markets
Most brokers do not need to monitor risk adjustment in depth. For brokers writing a significant book in a county with two or fewer carriers, three things worth watching before OEP:
- CMS annual transfer reports. HHS publishes risk adjustment transfer summaries by state and carrier in the spring following each plan year. A carrier receiving large net payments for two or three consecutive years has a financial incentive to stay. A carrier paying out large net amounts has a reason to examine whether the ACA product line is viable.
- State insurance department filings. Exit notices filed with state regulators often precede CMS announcements by weeks. State departments are required to post these filings publicly. Setting up a search alert for your key counties is worth doing before September.
- Carrier rate filings for the coming year. A carrier that is absorbing an unfavorable risk adjustment result often responds with a significant premium increase the following year. A 30 percent or higher rate increase in a county with two carriers is a signal worth noting for client conversations.
When a client in a thin county asks whether their carrier will still be there next OEP, the honest answer is that you are watching the filings. See the broker guide to carrier market exit for the specific steps when a county goes to one carrier or zero.
Use the plan finder to check current carrier availability in any rating area before client conversations in markets you do not write frequently.
ACA risk adjustment FAQ
Common questions from brokers about how risk adjustment works and what it means for market stability in their counties.
What is ACA risk adjustment and who administers it?
ACA risk adjustment is a permanent program established by Section 1343 of the ACA. HHS administers it nationally, collecting payments from carriers with healthier-than-average enrollees and distributing those funds to carriers with sicker-than-average enrollees. The calculation runs separately for each state and for each market segment (individual and small-group). No federal general revenue enters the pool.
How does HHS calculate risk adjustment transfers?
HHS uses the HHS-HCC (Hierarchical Condition Category) model, which assigns a risk score to each enrollee based on their diagnosed conditions (drawn from claims data), age, sex, and enrollment duration. The model also applies adjustments for the plan's metal tier and network type. Each plan's average risk score is compared to the statewide market average. Plans above the average receive transfers; plans below it pay into the pool. The transfers zero out within each state-market combination.
Can risk adjustment cause a carrier to exit a market?
Risk adjustment payments can be a contributing factor in a carrier's exit decision, though they are rarely the sole cause. Carriers that attract healthier enrollees, often through lower premiums or restrictive networks, may face significant net payments into the pool. If those payments exceed the margin generated by the healthier risk pool, the carrier's ACA product line may no longer be viable. Actuarial filings submitted with exit notices sometimes cite risk adjustment payment history as a factor.
What is the difference between risk adjustment, risk corridors, and reinsurance?
Risk adjustment is permanent and redistributes funds between carriers within a market. Risk corridors were a temporary ACA program (2014 to 2016) designed to limit carrier gains and losses during the market's early years; the program ended after Congress prohibited full funding in appropriations, leaving carriers substantially underpaid. Reinsurance is a separate mechanism that reimburses carriers for high-cost individual claims above a threshold. Transitional reinsurance ran from 2014 to 2016 nationally; state-based reinsurance now operates only in states with approved Section 1332 waivers such as Alaska, Maine, and several others.
How should brokers factor risk adjustment into plan recommendations?
Brokers generally do not need to model risk adjustment transfers when recommending individual plans to clients. Risk adjustment affects carrier economics, not the client's benefit package or premium after APTC. However, brokers monitoring plan stability in thin markets, particularly counties with one or two carriers, should watch for actuarial filings and exit notices that reference adverse risk adjustment experience. A carrier absorbing large net payments for several consecutive years has a different probability of remaining in a county than one receiving consistent net transfers.
