Exchange QHP sales account for a small portion of the big insurers' revenue, an analyst says.

Health insurers are counting on the new Patient Protection and Affordable Care Act (PPACA) risk-management programs to shore up exchange plan results this year, but there’s no guarantee that the “three R’s” will work as hoped, a rating analyst says.

Steve Zaharuk, a senior vice president at Moody’s Investors Corp., gives that assessment in a look at the insurers’ PPACA public exchange programs. Although exchange qualified health plan (QHP) enrollment has been strong, insurers have given few details about QHP underwriting results, Zaharuk writes. “At best,” he says, “insurers were predicting a break-even scenario, but most were anticipating losing money on the business for the full year.”

The insurers have included projected payments from the PPACA temporary reinsurance, temporary risk corridor and permanent risk-adjustment programs in QHP performance predictions, Zaharuk says.

  • The reinsurance program is supposed to use flat payments for each enrollee in an insured plan or in a self-insured plan with a third party administrator. For 2014, the program is supposed to help non-grandfathered plans in the individual market pay the bills for enrollees with claims over $45,000.
  • The risk corridor program is supposed to use money from individual and small-group QHP issuers with good underwriting results to help QHP issuers with poor results.
  • The risk-adjustment program is supposed to use money from insurers with relatively low-risk enrollees to help issuers of plans with relatively high-risk enrollees.

Because the reinsurance program will likely get a predictable stream of fee payments from health insurers and self-insured plans, insurers may be able to estimate payments coming from the reinsurance program with some degree of accuracy, Zaharuk says. “The other two remain highly uncertain and rely on assumptions with regards to the experience and results of the entire sector,” he says.

Typical QHPs offer unlimited annual and lifetime benefits but high deductibles. Young, healthy enrollees who are not getting significant subsidies and have little chance of meeting their deductibles may let their policies lapse, Zaharuk says. If QHP rates rise in 2015, that could increase the incentive for younger, healthier, higher income enrollees to give up their coverage, the senior VP says. State regulator efforts to make health insurers keep QHP prices low could backfire by leading the insurers to pull out of certain states’ exchange programs, he cautions.

Any problems in the QHP program would be interesting to exchange watchers, but they should not do much harm to the big health insurers, because exchange QHP sales account for just a small percentage of the insurers’ revenue, Zaharuk says.