Small New Insurers Making Big Payments to Blues Plans Under ACA

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By Sara Hansard

July 20 — Small new insurers are continuing to have to make big payments to the large, more-entrenched BlueCross BlueShield plans under the Affordable Care Act, a Standard and Poor's study finds.

Data from the Centers for Medicare & Medicaid Services on payments some health insurers will have to make for the 2015 plan year to carriers with sicker populations indicate that the ACA's permanent risk adjustment program “is working as expected,” said the S&P report released July 18. However,

“Not all insurers—especially the smaller, new insurers, are on board with the results,” it said, adding that the data “show a higher amount of payables for the newer and smaller CO-OPs compared to the more-entrenched Blues in the same state.”

The CMS released the data June 30 (127 HCDR, 7/1/16).

The risk adjustment program is critical to ensuring that health plans are able to cover people with pre-existing conditions as required by the health-care law. But implementing the program has proved difficult as small new plans—in particular the nonprofit Consumer Operated and Oriented Plans (CO-OPs) created under the ACA with government funding—say the low-cost plans they sell attract younger, healthier enrollees needed to keep the ACA marketplaces more affordable and thus they are stuck footing a larger bill.

Under the risk adjustment program, plans that had healthier-than-average enrollees had to make payments to plans covering sicker-than-average enrollees.

Cheapest Plans Hit Hardest

“If you grew by selling a whole lot of platinum plans you're probably not going to get hit that hard,” Thomas Policelli, chief executive officer of the Boston-based Minuteman CO-OP, told Bloomberg BNA July 19. “If you grew with a lot of bronze plans you are going to get hit hard.”

“What that's saying to all the carriers is don't grow your most affordable products,” Policelli said. “That's exactly not what we want to do for the market.”

Platinum plans, which cover an average of 90 percent of medical claims, are generally the most expensive plans sold on the ACA marketplaces and are often bought by people who expect high medical bills. Bronze plans, which cover an average of 60 percent of claims, are generally the cheapest and are more popular with people who expect lower medical expenses.

Minuteman, which grew 85 percent from 2015 to about 27,000 members currently, is the only one of the seven CO-OPs still operating that is not under a CMS corrective action plan. Sixteen of the original 23 CO-OPs have failed, and large risk adjustment payments contributed to the failure of many of them.

Payments by Large Plans

Some large plans also had to make large risk adjustment payments.

A report released July 1 by Boston-based health-care investment bank Leerink Partners LLC showing the impact of the 2015 risk adjustment payments on publicly traded companies found Aetna Inc. owes $608 million, Molina Healthcare Inc. owes $254 million, Humana Inc. must pay $96 million, the combined companies of Centene Corp. and Health Net Inc. must pay $49 million and UnitedHealth Group Inc. owes $47 million.

Among publicly traded companies Anthem Inc., which operates BlueCross BlueShield plans, is set to receive the most in risk adjustment payments with $195 million for 2015, while Cigna Corp. is set to receive $158 million for that plan year, the Leerink study found.

“Humana and Aetna also had big payables this year,” Deep Banerjee, director of financial services ratings at S&P Global and lead author of the S&P report, told Bloomberg BNA July 18. “But as a total their payables are less than 1 percent of their total outstanding capital.” For smaller companies the risk adjustment payments represent a high percentage of their capital, he said.

In addition, Banerjee said, the established health insurers have more diversified types of health plans, including employer-sponsored large group plans, and they are not primarily dependent on the success of the individual market plans sold in the ACA marketplaces.

Reinsurance Provided `Much-Needed Relief.'

The S&P report found that the ACA's temporary reinsurance program “has provided much-needed relief to the insurers,” with the Department of Health and Human Services paying more than insurers initially expected, close to $16 billion total for 2014 and 2015. But the reinsurance program ends after 2016, while the risk adjustment program is permanent.

For the CO-OPs the 2015 risk adjustment payments accounted for more than 20 percent of their capital, the S&P report said.

According to the report, Blue Cross Blue Shield of New Mexico (BCBSNM) is receiving $18.2 million, while New Mexico Health connections, a CO-OP, is paying $14.5 million; CareFirst Inc. Group in Maryland is receiving $50.4 million while Evergreen Health (a CO-OP) is paying $24.2 million; and Blue Cross Blue Shield of Illinois (BCBSIL) is receiving $33.9 million while Land of Lincoln, a CO-OP that is going out of business, is liable for $31.8 million.

The Illinois Department of Insurance issued an order June 27 directing Land of Lincoln to suspend the risk adjustment payments in an attempt to stave off “immediate liquidation.” The CO-OP still folded July 12 (135 HCDR, 7/14/16).

BlueCross BlueShield plans respond that the risk adjustment program is working as intended to shield plans that cover people with high medical claims.

“The risk adjustment program is designed to spread risk more evenly across health plans within the market,” Kristen Cunningham, a spokeswoman for Health Care Service Corp., told Bloomberg BNA in an e-mail July 19. Health Care Service Corp. owns BCBSNM and BCBSIL.

“BCBSIL and BCBSNM are receiving a payment to account for the higher risk of the members that enrolled in our plans,” Cunningham said. “Even with the payment, BCBSIL lost $488 [million] on its retail ACA membership in 2015, and BCBSNM lost $22 [million] on its retail ACA membership in 2015.”

Program `Working as Intended,' Actuaries Say

Barb Klever, chairperson of the risk sharing subcommittee of the American Academy of Actuaries (AAA), told Bloomberg BNA July 19 that a study the AAA released in April on risk adjustment payments for the individual market in 2014 found that “in general” the program “was working as intended by shifting from insurers with low risk to insurers with high risk. Klever is an actuary with the Blue Cross Blue Shield Association, but she spoke on behalf of the AAA.

Klever said changes to the program that the CMS has said it is considering, primarily accounting for people enrolled for only part of a plan year and accounting for prescription drugs, “would be helpful” in making the risk program work better.

The AAA study on 2014 risk adjustment payments found that among 163 small insurers with less than a 10 percent share of their markets, more than 100 received payments and 60 paid into the program, Klever said. For smaller insurers, however, “their risk adjustment transfers are more variable and can be a higher percentage of premiums,” she said.

Questioning the Program

But some analysts question whether the program will ever work effectively as it is set up.

Brian Blase, a senior research fellow at the free market-oriented Mercatus Center at George Mason University, told Bloomberg BNA July 19 that the program would have to be financed by taxpayers, like Medicare Advantage's risk adjustment program, in order to avoid penalizing insurers that attract young, healthy enrollees with low-cost plans. Unlike Medicare Advantage, the ACA risk adjustment program is budget neutral, meaning all payments must come from other insurers.

That would cost “billions of dollars” to taxpayers, Blase said.

The S&P report said that in 2015 a total of $3.9 billion was transferred among 817 insurance plans through the ACA risk adjustment program, compared with $2.3 billion transferred among 758 plans in 2014. The industry underestimated net payables by about $285 million for 2015, it said.

A major difference between large, established plans and new plans is that the older plans have more experience in risk adjustment, Anand Shroff, chief technology officer of risk adjustment technology company Health Fidelity, told Bloomberg BNA July 19.

“The larger health plans are just far more experienced and have more resources to correctly capture the risk that they're taking on with these individuals” in the ACA marketplaces, he said.

Regulator's Concern

Indeed, some state regulators have expressed similar concerns.

New York State Superintendent of Financial Services Maria Vullo June 28 wrote HHS Secretary Sylvia Mathews Burwell questioning the CMS's findings that “new and smaller issuers generally are considered to have had relatively [healthier] members than their larger and more established competitors.”

The CMS's findings appear to be “unduly impacted by the dates of diagnoses or recording of diagnoses of members' medical conditions rather than actual relative health of the members,” Vullo wrote.

“DFS is very concerned that newer and smaller issuers in New York's health insurance market will be expected to pay tens of millions of dollars into the pool,” Vullo wrote.

“For these issuers, the millions to be paid represent a significant portion of their revenues, and may create a significant financial stress on such issuers,” she said. “The risk adjustment program was not intended to risk an insurer's financial health, particularly where certain large insurers are benefitting from the program and may therefore reap additional profit.”

Plans that continue to stay in the ACA marketplaces are likely to see their volatility decrease, Brandon Solomon, a director with health-care management consulting company HealthScape Advisors, told Bloomberg BNA July 19.

“The transfer payments are not indicative of profitability,” Solomon said.

Plans Making Payments Can Still Be Profitable

Plans that attract healthier populations and have to make risk adjustment payments “could still be profitable,” Solomon said. But the payments could affect premiums the plans must charge to be profitable, he said.

Unless the risk adjustment program is made to work more predictably for plans, it could discourage plans from entering the marketplaces. Plans need to make sure they are accurately coding the health risk of their enrollees, Tom Kornfield, vice president of Avalere Health, told Bloomberg BNA July 20.

Health plans will likely get better at coding enrollees accurately to reflect their health status, Kornfield said.

However, he said, if the CO-OPs go out of business, the large payments they are making to the BlueCross BlueShield plans will cease. “That will change the way the money is distributed,” he said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bna.com

For More Information

The Standard and Poor's study is at http://src.bna.com/gXx.

The Leerink Partners report is at http://src.bna.com/gXJ.

The AAA study is at http://actuary.org/files/imce/Insights_on_the_ACA_Risk_Adjustment_Program.pdf.

The New York DFS letter to Burwell is at http://src.bna.com/gX5.

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