16 Mar

How Has Aetna Implemented the Premium Stabilization Program?

WRITTEN BY Margaret Patrick

Premium stabilization

The ACA (Affordable Care Act) requires that private health insurers not deny coverage or charge higher premiums to people with pre-existing conditions. This requirement exposes the private health insurance industry (XLV) to high risk and encourages health insurers such as Aetna (AET), Humana (HUM), Cigna (CI), and UnitedHealth Group (UNH) to adopt measures that attract only healthy enrollees.

To avoid this approach, the ACA has introduced a premium stabilization program as a risk management mechanism for health insurance companies. The 3R Program involves three sub-programs: risk adjustment, reinsurance, and risk corridors.

How Has Aetna Implemented the Premium Stabilization Program?

The above graph shows the breakup of Aetna’s recoverables and payables from the premium stabilization program, amounting to $338 and $230 million, respectively.


The ACA initiated reinsurance as a temporary program from 2014 to 2016. The program transfers funds collected from all insurers to individual insurance plans with high-cost enrollees. Aetna recorded reinsurance receivables of $338 million in 2014.

Risk adjustment

The risk adjustment program is a permanent program that began in 2014, applicable to individual and small group plans, to prevent health insurers from selecting only healthy people as enrollees. The program prevents this by transferring funds from plans with lower-risk enrollees to plans with higher-risk enrollees. Aetna registered $230 million as net payables in the risk adjustment program in 2014.

Risk corridors

The risk corridor program attempts to protect health insurers selling plans on public exchanges from extreme gains and losses. Plans sold on public exchanges, also called QHPs (qualified health plans), receive a target amount for costs. If the actual claim costs of the QHPs vary greater than 3% above or below the target amount, the plan will either receive or pay funds to the risk corridor program. Aetna didn’t participate in the risk corridor program, as the company was uncertain about the funding structure of this program, which led to a minor increase in the company’s operating expenses.

Latest articles

US crude oil production has more than doubled since 2009 and grew by 1.1% over the last year. Currently, there are 133 operable refineries in the US.

The cannabis industry is fighting against the ongoing US-China trade war and recessionary worries, which have hurt valuations across the global market.

Higher revenues, increased ticket prices, and lower fuel costs are likely to drive American Airlines' Q3 earnings higher despite its Boeing MAX woes.

HEXO plans to report its Q4 earnings before the market opens on October 24. October has been tough for Hexo, with its stock falling 31.2% as of October 18.

Today, Advanced Micro Devices (AMD) rose 4% to over $32, making it one of the top Nasdaq gainers. Morgan Stanley raised its price target for AMD stock.

Early in 2019, President Donald Trump warned that China could overtake the US as a global power. He vowed that this would not happen under his leadership.