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What’s PPACA World really like?

By Allison Bell

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The big health insurers have reported a full year of 2014 results, and they and the Patient Protection and Affordable Care Act (PPACA) public exchanges are nearly done with the second annual open enrollment period.

More than 1 million Americans have had PPACA exchange qualified health plan (QHP) coverage in place for at least a year.

Patients have used the QHP coverage to get care, and doctors and hospitals have sent bills to the QHP issuers.

Millions of more employers, workers, dependents and individual coverage buyers are using new, PPACA-compliant coverage purchased outside the public exchange system.

See also: View from PPACA World: Ken Fasola

So far, however, many players’ descriptions of what’s going on out in the new, PPACA-made health insurance world amount to, “Well, it’s big.”

Government officials’ and insurers’ reports on PPACA World have been notably lacking in specificity about matters such as how well fully PPACA-compliant plan enrollees are getting care, how well providers are getting paid, and how back-office exchange administration is going.

See also: 3 ways the PPACA exchange picture has changed

For a few more data points from rating analyst reports, Web broker surveys, and hospital and broker earnings reports, read on.

King Cash

1. Cash is king

One of the most visible, concrete looks into the finances of a fully PPACA-compliant plan has occurred because of the failure of CoOportunity Health, a new, nonprofit, member-owned health insurer that was providing coverage for about 100,000 residents of Iowa and Nebraska.

CoOportunity was a Consumer Operated and Oriented Plan (CO-OP) carrier. The drafters of PPACA put funding for CO-OP startup loans in the act in effort to increase the level of competition in some states’ health insurance markets and to get health insurers’ to be more aggressive about keeping rates low.

Some have wondered whether the failure of CoOportunity was that the PPACA public exchange system might have lured many insurers into setting exchange QHP rates unsustainably low.

Deep Banerjee and other analysts at Standard & Poor’s Ratings Services have tried to answer that question, at least for the CO-OPs, in a new report on CO-OP finances.

The S&P analysts say that, as of Sept. 30, 2014, all but one of the 21 CO-OPs the analysts reviewed was reporting a net loss, with the size of the net losses ranging from 9 percent at Coordinated Health Mutual Inc. of Ohio, which had lost $4.6 million on $50 million of surplus and $129 million in federal startup funding, to 314 percent at Community Health Alliance Mutual Insurance Company of Tennessee, which had lost $8.5 million on $2.7 million in surplus and $73 million in startup funding.

One CO-OP, Maine Community Health Options, stood out from the pack by earning $11 million in net income on $31 million in surplus and $132 million in startup funding.

At that point, CoOportunity had lost $40 million on $75 million in surplus and $145 million in startup funding. Its net loss amounted to 53 percent of surplus.

A total of five CO-OPs had either positive net income or a net loss equal to less than 40 percent of its surplus.

Medical loss ratios, or ratios of claims to premiums, “were hopelessly high for several of the CO-OPs due to high medical services utilization by members, leaving very little to cover administrative costs,” the S&P analysts say.

Many new ventures lose money, but CO-OPs may have more trouble getting additional seed capital than other ventures, because PPACA rules prohibit for-profit health insurers from owning, controlling or buying CO-OPs.

In the near term, the analysts say, “Lack of adequate liquidity is more of a concern than negative earnings.”

CoOportunity had only 80 percent liquidity ratio, or ratio of available cash to short-term cash needs.

The S&P found a total of five CO-OPs with liquidity ratios under 120 percent. The others have higher liquidity ratios, and 14 have ratios over 200, suggesting that they have enough cash to meet any short-term need for cash, the analysts say.

PPACA drafters created a three-year reinsurance program and a three-year risk corridors underwriting margin buffer program that could help the CO-OPs in the short term, the analysts say.

After that, “it is likely that some of the CO-OPs will continue to struggle against the more entrenched players unless the CO-OPs can build positive brand recognition, contract well-negotiated provider networks, and gain financial stability,” the analysts say.

Sky

2. For the big health insurers, at least, the sky has not fallen

Although CoOportunity has failed, and other CO-OPs are facing challenges of their own, the big health insurers reported solid profits for the fourth quarter of 2014 and the full year.

Before the PPACA exchange program started and the major PPACA commercial health insurance underwriting changes took effect, on Jan. 1, 2014, rating analysts at S&P and Moody’s Investors Services predicted that the big health insurers would weather the changes well.

Analysts at Moody’s this week looked back on 2014 and changed its overall outlook for U.S. health insurers to stable, from negative.

PPACA creates challenges for the insurers, and most seem to have lost money on their exchange QHP business, but the companies have demonstrated the ability to adapt to the changes, the analysts say.

It’s still not sure how the PPACA programs will work, but the big insurers have managed regulatory risk by diversifying, keeping their exchange programs relatively small, using narrow provider networks and conservative benefit designs, and keeping pricing rational, the analysts say.

Dial

3. The PPACA premium subsidy access cut-off is a big deal

Drafters of PPACA tried to control the cost of PPACA, and minimize the possibility that PPACA would crowd out the cash private individuals and companies were already using for health insurance, by limiting access to PPACA exchange QHP premium subsidies to people with incomes under 400 percent of the federal poverty level.

For consumers in the individual health market who have health problems, PPACA underwriting restrictions have created new access to high-quality commercial health coverage. But, in states that previously allowed medical underwriting, the coverage rules have increased the full price for individual coverage.

Only consumers with incomes under about 300 percent of the federal poverty level can get PPACA subsidies big enough to compensate for PPACA-related increases in premiums.

A Web broker, eHealth Inc. (Nasdaq:EHTH), recently surveyed 1,562 of its customers online. The firm found that 84 percent of health coverage buyers who qualified for QHP subsidies were satisfied with the value of their health plans, compared with just 65 percent of the consumers who were buying coverage without help from the subsidies.

About 64 percent of QHP subsidy users say they are doing at least as well, in terms of the cost of health coverage, as they were before Jan. 1, 2014, and 47 percent of them said PPACA has had a positive effect on the quality of their health coverage.

Only about 40 percent of the people who are having to pay for coverage entirely out of their own pockets say they are doing as well as, or better than, they were doing before the major PPACA coverage access programs came to life. Fifty-percent said PPACA had hurt the quality of their coverage.

See also: Health costs slam middle-income Americans

Exam

4. HCA sees signs access to commercial exchange products may change the use of care more than access to Medicaid does

PPACA has helped many uninsured people get coverage by expanding access to Medicaid, and it’s helped a smaller number get covered through exchange QHP programs.

Samuel Hazen, chief operating officer at HCA Holdings Inc. (NYSE:HCA), said that, although HCA is happy to see the new Medicaid enrollees coming in with some kind of coverage, they seem to have the same kinds of trouble with provider access that Medicaid enrollees have traditionally had, and that they seem to be about as likely to visit hospital emergency rooms for conditions that, in theory, could be handled elsewhere.

The uninsured patients who get into the commercial health plans seem to be a little less likely to use the emergency room and get care elsewhere, such as through urgent care centers, Hazen said during HCA’s fourth-quarter earnings call.

“Is that material?” Hazen asked. “No. Could it possibly develop over time?”

HCA still thinks that the exchange QHP enrollees could end up reducing use of hospital emergency rooms, and it’s investing in urgent care facilities and other ER alternatives to prepare for that possibility, Hazen said.

See also: Chicago sees no PPACA-driven drop in ER use

Electronic market

5. Aon says its private exchange program has 1.2 million enrollees

Health insurers have not said much about private exchange programs this quarter, or have expressed some disappointment about the results.

But Greg Case, president of Aon P.L.C. (NYSE:AON), said during Aon’s fourth-quarter conference call that its private exchange program now has 1.2 million enrollees. That’s up from 600,000 in September.

Returning clients paid an average of just 2.6 percent more for coverage, and the enrollees’ benefits were more stable than if the employers had tried to provide comparable benefits through fully insured plans, Case said.