The Affordable Care Act risk-adjustment program is working so poorly that it's pushing individuals and small groups that have alternatives out of the ACA-compliant coverage market, according to Mark Bertolini.
The ACA now requires insurers to sell individual and small-group health coverage on a guaranteed-issue basis, without shutting out sick people or charging them more for coverage. The ACA risk-adjustment program is supposed to help keep the issuers from ending up with more than their fair share of sick people. Program managers are supposed to use cash from carriers with healthier enrollees to help carriers with sicker enrollees.
Bertolini, the chairman of Aetna, said today during a conference call with securities analysts that, because of market design flaws, the average price of ACA-compliant individual and small-group coverage is about 10 percent to 15 percent below where it needs to be for the participating issuers to break even.
Because of that, once the risk-adjustment program managers collect the collectibles and pay out the payables, "everybody loses the same amount of money," Bertolini said.
The program now shifts cash from issuers that are losing some money to issuers who are losing more money, Bertolini said.
Until managers change the system, "we're going to find ourselves in a premium spiral that's going to continue to drive rates up, and good risk out, and ultimately create a very bad risk pool," Bertolini said.
Bertolini was describing a "death spiral," or situation in which insurance market design flaws create a self-perpetuating cycle of premium increases and market shrinkage.
Bertolini gave his assessment of ACA market conditions while he and other Aetna executives discussed third-quarter earnings.
Aetna losing $335 per enrollee
The Hartford-based health insurance giant reported $604 million in net income for the quarter on $16 billion in revenue, up from $560 million in net income on $15 billion in revenue for the third quarter of 2015.
The company ended the quarter providing or managing major medical coverage for 23.1 million people, down from 23.5 million people a year earlier.
The Medicare supplement policy count increased to 667,000 from 534,000.
The number of Medicare Advantage enrollees increased to 1.4 million from 1.2 million.
The number of people in the company's Medicaid plans rose to 2.4 million from 2.2 million.
Commercial plan enrollment fell to 19 million, from 19.5 million mainly because enrollment in insured commercial plans fell to 5.6 million, from 5.9 million.
Aetna's commercial plan unit has 775,000 enrollees in ACA individual exchange coverage and 270,000 people in ACA-compliant individual off-exchange individual coverage.
About 550,000 of the small-group plan enrollees are in ACA-compliant small-group plans.
Although the company as a whole is doing well, Aetna expects to lose $350 million this year, or an average of $335 per enrollee, on the individual coverage, executives said. Losses-per-enrollee will be somewhat higher in the off-exchange market than in the exchange market.
Earlier this year, Aetna said it would reduce its individual health coverage market footprint about 85 percent. In the 38 HealthCare.gov states, for example, Aetna is on track to have plans on the exchange menu only in Delaware, Iowa, Nebraska and Virginia.
Today, executives estimated withdrawals would affect enrollees who now account for about $2.7 billion of the company's $4 billion in individual market revenue.
In the small-group market, executives said, plans with 50 to 100 lives that are free from the ACA small-group rules are doing well, but employers with younger, healthier employees are looking for alternatives to ACA-compliant fully insured coverage.
In the large-group market, profits and customer are strong, but the volume of opportunities to pick up new business is light, executives said.
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