First introduced in 2014 as part of the Affordable Care Act (ACA), commercial risk adjustment aims to establish a level playing field for ACA Marketplace plans serving members with higher-than-average risk scores and needs in the individual and small group markets. This includes a risk transfer formula to enable monetary transfers from plans with overall lower risk to plans with overall higher risk within the same market. 

The financial stakes are high: among the 605 participating issuers for the 2023 benefit year, the absolute value of all transfers totaled nearly $20.6 billion, meaning $10.3 billion was charged to plans with lower risk scores and $10.3 billion in payments was received by plans with higher risk scores. 

For 2025, ACA Marketplace enrollment reached 24.2 million consumers, more than double the 2021 enrollment. This growth can be largely attributed to enhanced subsidies that significantly reduced premium payments, including providing 100% subsidies for the lowest-income enrollees, as well as the resumption of Medicaid redetermination.

Issued by the Centers for Medicare & Medicaid Services (CMS) in January 2025, the Notice of Benefit and Payment Parameters for 2026 Final Rule, or the final 2026 Payment Notice, contains changes that will affect coverage design, Risk Adjustment Data Validation (RADV) audit methodology, and financial planning. In this white paper, we review these changes and identify actions that Qualified Health Plans (QHPs) can take to prepare and strengthen their programs.

Changes in coverage design

Key changes in the final 2026 Payment Notice pertaining to coverage design include:

• Phasing out the market pricing adjustment to the plan liability associated with Hepatitis C drugs: Costs for these drugs will be modeled more consistently with other specialty drugs, eliminating the previous market pricing adjustments.
• Inclusion of HIV Pre-exposure prophylaxis (PrEP) drugs: These drugs will be added as a new, separate factor into the 2026 benefit year HHS risk adjustment adult and child risk adjustment models to help address potentially high costs and reduce issuer incentives to restrict coverage and access to care. However, generic drugs will be excluded in both models.

Consider these strategies to prepare for these changes: 

• Update your treatment options: Reassess Hepatitis C treatment strategies as the market pricing adjustment phases out. Evaluate cost-effective treatment options that maintain quality care; Ensure your formulary adequately covers PrEP medications, as they will now impact risk scores.
• Revisit provider education: Educate providers on the importance of properly coding PrEP utilization and refresh provider coding education and alignment on conditions impacting your risk adjustment programs in 2026. Update any provider incentive programs tied with your risk adjustment goals.
• Deploy member engagement: Develop strategies to engage high-risk members and targeted outreach to connect them to appropriate care. Implement wellness programs that address key risk factors.

Changes to the RADV program

To improve HHS-RADV results, CMS is finalizing changes to the initial and second validation audits applied to a data sample selected by CMS. These changes include: 

• Initial Validation Audit (IVA) sampling changes: Revisions include excluding enrollees without Hierarchical Condition Categories (HCCs), such as adult enrollees with only Prescription Drug Categories (RXCs); removing the Finite Population Correction (FPC) used to adjust IVA sample sizes for smaller issuers; and updating data sources to determine the IVA sample groups with the three most recent consecutive years of HHS-RADV data.
• Second Validation Audit risk adjustment results or error rate findings: CMS introduced a second materiality threshold that allows plans to rerun the results if their appeal is successful. The threshold is met if the financial impact on the issuer is at least $10,000, which CMS expects to reduce administrative costs to issuers and the government.

Consider these strategies to prepare for these changes: 

• Revisit your audit strategy: Strengthen your IVA processes, focusing on enrollees with HCCs. Implement ongoing internal audits to help ensure that documentation supports reported HCCs. Develop a strategy for potential appeals of second validation audit results, considering the new materiality thresholds.
• Focus on data quality and accuracy: Implement robust data collection and validation processes to help ensure accurate reporting of diagnoses and drug utilization, especially for conditions impacting risk scores. Focus on comprehensive documentation of HCCs to maximize risk adjustment accuracy.
• Deploy analytics and predictive modeling: Invest in advanced analytics to identify trends and predict risk scores more accurately. Use data-driven insights to inform care management and risk mitigation strategies.

HHS risk adjustment user fee and changes to MLR regulations 

Key changes that will impact QHPs financially include updates to the HHS risk adjustment user fee and modifications to the medical loss ratios (MLR) regulations: 

• HHS risk adjustment user fee: For the 2026 benefit year, CMS is finalizing a risk adjustment user fee of $0.20 per member per month, up from $0.18 in the 2025 benefit year. This fee is higher to account for updated enrollment estimates in the individual and small group markets, particularly considering the potential expiration of enhanced premium tax credit (PTC) subsidies.
• MLR: CMS announced it would finalize a policy to amend MLR regulations, providing qualifying issuers the option to modify the treatment of net risk adjustment receipts. This would allow net receipts to impact the MLR denominator rather than the numerator for plans focusing on underserved communities with high health needs. CMS noted that such plans rely heavily on risk adjustment payments versus member premiums.

Consider these strategies to prepare for these changes: 

• Financial planning: Incorporate the confirmed $0.20 PMPM risk adjustment user fee into your 2026 financial projections, while also creating alternative budget scenarios that account for potential legislative extensions of enhanced Premium Tax Credit subsidies prior to July 31, 2025. If subsidies are extended by July 31, 2025, reallocate savings from lower Federally Facilitated Marketplace (FFM) fees to member retention programs.
  • Segment the financial impact analysis by product line and market segment to identify areas requiring targeted efficiency improvements. Evaluate operational workflows and identify automation opportunities to offset increased administrative costs while ensuring any automation tools comply with IVA documentation standards. Implement blockchain-based audit trails for HCC coding to meet 2026 RADV standards.
  • Establish a legislative monitoring protocol to track congressional actions related to ACA subsidies, with trigger points for rapid financial recalibration if subsidies “will expire or be extended.” 
• MLR updates: Assess your qualification status for the modified MLR calculation by analyzing your member profiles against CMS criteria for serving underserved communities with high health needs. Avoid assuming broad eligibility as CMS expects a "very small number" of plans that meet the definition of “qualifying issuer” and also owe rebates.
  • Perform comparative modeling, if qualified, of both MLR calculation methodologies to determine the financial impact of shifting net risk adjustment receipts from the numerator to the denominator. 
  • Develop a decision framework incorporating risk tolerance, regulatory considerations, state regulatory alignment, and financial objectives to guide your MLR strategy. 
  • Create a comprehensive communication plan for state regulators, investors, and other stakeholders to explain your MLR approach and its alignment with your mission to serve vulnerable populations. 

Support for Marketplace plans

Delivering commercial risk adjustment success since program inception, Cotiviti supports Marketplace plans amid rapidly evolving regulatory changes. Start the conversation with Cotiviti to learn how we can deliver risk score accuracy to your organization, enabling you to better identify and care for the health needs of your member populations. See how we deliver:

• >98% average coding accuracy across our commercial risk adjustment clients
• >10M charts coded per year
• 25 years of industry experience

 

With Cotiviti's support, health plans can achieve greater accuracy, efficiency, and financial stability in their risk adjustment efforts.