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Aetna: What PPACA problem?

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Health insurance company executives may be getting enough comfort with, and information about, the new world created by the Patient Protection and Affordable Care Act (PPACA) to look at it with their eyes open.

Representatives from Aetna Inc. (NYSE:AET) and a smaller insurer, Centene Corp. (NYSE:CNC), gave more details than many insurers have in the past about how PPACA is affecting their operations.

Aetna is reporting $778 million in net income for the first quarter on $15 billion in revenue, up from $666 million in net income on $14 billion in revenue for the first quarter of 2014.

The company ended the quarter providing or administering health coverage for 24 million people, up from 23 million people a year earlier. Enrollment rose 3.3 percent for commercial business, and 9.1 percent in Medicare and Medicaid plans, to 2.1 million.

Enrollment in commercial plans offered together with health savings accounts or health reimbursement arrangements rose 13 percent, to 4 million.

Enrollment in PPACA public exchange qualified health plans (QHPs) increased to 950,000, from 230,000 a year earlier.

Centene, which has traditionally focused on the government plan market, is reporting $63 million in net income for the latest quarter on $5.1 billion in revenue, up from $33 million in net income on $3.5 billion in revenue for the first quarter of 2014.

Centene ended the quarter providing or administering coverage for 4.4 million people, up from 3 million people a year earlier.

At Centene, public exchange enrollment increased to 161,700, from 39,700 a year earlier.

Earlier this month, UnitedHealth Group Inc. (NYSE:UNH) said little about PPACA or its exchange operations when it talked about its first-quarter results. Anthem Inc. (NYSE:ANTM) is set to release its earnings tomorrow.

For a look at what else Aetna and Centene are saying about PPACA World, read on.

Something bad could still happen.

1. Something bad could still happen.

Centene simply lists changes in federal and state laws and regulations, including PPACA and PPACA regulations, as potential sources of risk in the disclaimer that accompanies its earnings release.

Aetna has given a detailed list of the perils it may face in PPACA World, including:

  • Increased fees, taxes and assessments related to health care reform.

  • Adverse legislative, regulatory or judicial changes to PPACA laws or regulations.

  • The implementation of the PPACA exchanges.

  • The profitability of its PPACA exchange products, and problems such as an influx of QHP enrollees who are heavy users of health care.

  • The fact that the federal government still has to develop the regulations and procedures needed to implement PPACA.

  • The uncertainty caused by congressional efforts to block PPACA.

See also: Top court’s PPACA ruling could shake hospitals, insurers

Chillicothe, Mo.

2. Grandfathered and grandmothered individual coverage might be passing on.

A PPACA “grandfather” provision officially lets insurers keep health insurance policies that were issued before March 23, 2010, when PPACA was signed into law, in place, with only a few modifications.

In many states, a combination of federal guidance and state action is creating a “grandmothering” system that lets insurers continue coverage written after March 23, 2010, and before Jan. 1, 2014, when major PPACA provisions took effect.

Some insurers have said that unexpected grandmothering hurt their performance in 2014.

See also: CCIIO posts grandmothering relief numbers

Karen Rohan, Aetna’s president, said during a conference call with securities analysts that the company has moved just about all of its 1.3 million individual coverage holders, including the policyholders that have bought coverage outside of the public exchange system, into PPACA-compliant plans. 

Aetna also noted that it improved profit margins in its commercial insurance operation by increasing rates for the bigger small groups, or those with 51 to 300 lives.

Image: Downtown Chillicothe, Mo., in the early 1900s. (AP photo/City of Chillicothe)

A hand paying money

3. At least two health insurers might be doing well enough to pay money into the PPACA “three R’s” risk-management programs.

PPACA drafters created three programs to buffer insurers against the effects of the new PPACA programs and underwriting rules: a reinsurance plan that’s supposed to protect PPACA-compliant individual and small-group plans against enrollees with catastrophic costs for 2014, 2015 and 2016; a risk corridors program that’s supposed to use money from issuers with good underwriting results to help exchange plan issuers cope with poor results for 2014, 2015 and 2016; and a permanent risk-adjustment program that’s supposed to move cash from issuers with low-risk enrollees to issuers with high-risk enrollees.

Regulators have already said that the PPACA reinsurance program is likely to end up with 19 percent less insurer payment revenue for 2014 than government budget analysts had predicted.

Officials have said they will not be notifying insurers about preliminary risk corridors program payables and receivables until mid-August, and some have wondered whether any insurers did well enough in 2014 to have to make risk corridors program payments.

Centene says in a first-quarter financial report filed with the U.S. Securities and Exchange Commission (SEC) that it was expecting to have to pay $72 million into the risk-adjustment program as of March 31, and $23 million into the risk-adjustment program. It was hoping to get $15 million from the reinsurance program.

Aetna says its first-quarter financial report that it was expecting to pay $428 million into the risk-adjustment program as of March 31, and that it was hoping to get $385 million in PPACA reinsurance money. The company says that it has not recorded any risk corridor receivables, because payments from the program are uncertain, and that it has recorded an “immaterial” payable. 

Aetna executives said the risk programs might have an effect big enough to put some pressure on profit margins, but that it still looks as if the company could get the mid-single-digit margins it was hoping to get. Executives said they might have enough information to give risk corridors program numbers around June 30.


4. The Cadillac tax is sparking conversation.

Aetna executives said employers do seem to be thinking about the coming PPACA excise tax on high-cost health benefits packages. 

Especially at unionized employers, “I expect that we’ll see some pretty contentious discussions,” Aetna Chairman Mark Bertolini said during his company’s call.

But Rohan, Aetna’s president, said the actual large-group business pipeline looks about the same as it looked a year ago.

See also: PPACA Cadillac plan tax: Who pays what?


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