Private-option enrollees and other Arkansans enrolled in the state's individual health insurance market last year appear to be more expensive to insure than their counterparts in other states, according to a federal report.
The report lists scores that are based on enrollees' age, sex and medical diagnoses and whether a plan is subsidized to cover a greater share of the enrollees' medical expenses.
The report by the U.S. Department of Health and Human Services' Centers for Medicare and Medicaid Services shows that the average "risk score" of a person covered in the individual insurance market was higher in Arkansas than in 48 other states and the District of Columbia, which participated in the federal risk adjustment program last year.
Massachusetts doesn't participate in the federal program because it has its own risk adjustment program.
For plans such as the private option that include such enhanced benefits, the score is increased to reflect people's tendency to use more of a service when it costs them less.
Arkansas' average risk score for 2015 was 2.075. West Virginia had the second-highest average score, 1.99, followed by Tennessee, which had an average score of 1.924.
California had the lowest score, 1.344.
As of Dec. 31, private-option enrollees made up about 200,000 of the 324,000 people covered in Arkansas' individual insurance market.
The private-option program uses federal Medicaid funds to buy insurance in the individual market for low-income adults.
Arkansas created the program in 2013 as a primary way of expanding Medicaid to adults who have incomes of up to 138 percent of the poverty level: $16,394 for an individual, for instance, or $33,534 for a family of four.
The only similar program in the country that was in effect last year, in Iowa, covered about 3,000 people at the end of the year, according to a report filed by Iowa with the Centers for Medicare and Medicaid Services.
Iowa's average risk score was 1.587, the country's 28th-highest score.
"When the private option was put in place, it wasn't clear whether that would make the individual insurance risk pool healthier or sicker," said Larry Levitt, senior vice president for special initiatives at the Menlo Park, Calif.-based Kaiser Family Foundation.
"These numbers certainly suggest that the private option is making the risk pool sicker."
Arkansas' average risk score increased from 1.809 in 2014, when it was the ninth-highest in the country.
But over the same period, the average monthly premium for an individual market plan in Arkansas fell slightly, from $359.79 to $358.23.
The national average premium increased 3 percent, from $354.18 in 2014 to $364.89 in 2015.
Although sicker customers could lead to higher premiums, supporters of the private option say it has had the opposite effect: holding down premiums by drawing younger people into the individual insurance market and increasing competition among insurance companies.
Michael Stock, chief executive of Little Rock-based QualChoice Health Insurance, said the private-option enrollees tend to have more chronic health conditions, such as diabetes and hepatitis-C, and tend to be more expensive to insure than those in the traditional commercial market.
"Part of that is because they haven't had insurance before, and there's a lot of pent-up demand," Stock said. "A number of these people might have medical conditions that haven't been addressed, and they become exacerbated."
As the conditions are treated, the cost of insuring the enrollees could fall, he said.
Arkansas Blue Cross and Blue Shield spokesman Max Greenwood attributed the state's risk score to "more utilization by more people," including many who gained insurance for the first time under the private option.
"When people have little, [or] no, out-of-pocket cost for medical services and prescription drugs, they are more likely to have increased utilization," Greenwood said in an email. "That's why it's important to emphasize preventative care plans as well as making sure folks new to the health care system have a good understanding [of], as well as ample access to, various resources to help them best use the services available."
The risk adjustment program, created under the 2010 federal Patient Protection and Affordable Care Act, requires insurance companies whose customers' average risk scores are low to make payments that ultimately go to other companies in the same state that have high average customer risk scores.
The program is designed to discourage companies from attempting to enroll only healthy people.
Two of the three companies that participated in the private option last year will receive payments under the program because of their high average risk scores.
Arkansas Blue Cross and Blue Shield will receive about $8.4 million in connection with its plans and those it offered on behalf of the national Blue Cross and Blue Shield Association.
QualChoice will receive about $3.9 million.
Those companies are the only ones in the state that will receive risk adjustment payments for 2015, according to the report, which was released June 30.
St. Louis-based Centene, which also participates in the private option, will pay $10.9 million into the program, according to the report.
UnitedHealth Group, which began participating in the private option this year, will pay $280,000.
Four other companies, which have not participated in the private option, also owe payments.
They are Assurant Health, which owes about $669,000; Humana, which owes about $484,000; Aetna, which owes about $15,000; and USHealth Group, which owes about $5,000.
The risk adjustment program applies to plans offered on and outside of health insurance exchanges that meet Affordable Care Act requirements, such as offering certain "essential health benefits" and limiting enrollees' yearly out-of-pocket medical expenses, that went into effect Jan. 1, 2014.
The program doesn't apply to plans issued before 2014 that don't meet the law's requirements.
Joe Thompson, director of the Arkansas Center for Health Improvement, noted that the states with the highest risk scores also tended to rank low in overall health as measured in the annual America's Health Rankings report, compiled by the United Health Foundation and American Public Health Association.
Arkansas ranked No. 48 in the latest ranking, released late last year. West Virginia ranked No. 47, and Tennessee ranked No. 43. California ranked No. 16 in the report.
"This is a pretty strong independent indication of the economic costs of poor health," he said.
Arkansas has filed a request with the Centers for Medicare and Medicaid Services to make changes to the private option that Gov. Asa Hutchinson has said would encourage enrollees to stay employed and take responsibility for their health care.
The revamped program would be officially called Arkansas Works.
The Centers for Medicare and Medicaid Services also operates a risk adjustment program for small-business insurance plans.
Arkansas Blue Cross and Blue Shield will receive about $1 million under that program, while companies owned by UnitedHealth Group will pay a net $1.3 million.
Other companies that will receive payments include Blue Cross' HMO Partners, which will receive about $681,000; Humana, which will receive about $92,000; and Federated Mutual Insurance Co., which will receive about $65,000.
Companies making payments include QualChoice, which owes $290,000; Assurant, which owes $279,000; and Aetna, which owes $41,000.
Under a separate program, known as reinsurance, Arkansas companies will receive a total of about $90 million from a federal fund to offset the cost of insuring customers in the individual insurance market whose medical expenses last year totaled more than $45,000 each.
More than $64 million of the total will go to Arkansas Blue Cross and Blue Shield, which insured about 77 percent of the people covered through the individual market, including private-option enrollees, at the end of last year.
The program is funded by an annual fee charged to insurance companies for every person covered under an individual or group health insurance policy.
The fee was $44 per person in 2015. This year, the final year of the three-year program, it dropped to $27 per person.
QualChoice Health Insurance will receive $15.6 million under the program, and Centene will receive $8.2 million.
Other companies that will receive payments under the program include Assurant, which will receive $853,000; UnitedHealth, which will receive $506,000; and Humana, which will receive $149,000.
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