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Securities analysts notice PPACA risk corridors program

By Allison Bell

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Wall Street investment firms seem to be paying more attention to the three big Patient Protection and Affordable Care Act (PPACA) health insurer risk-management programs.

Several securities analysts asked Jay Gellert, the president of Health Net Inc. (NYSE:HNT), about the PPACA risk corridors program Monday during the company’s first-quarter earnings call.

Health Net is reporting $30 million in net income for the first quarter on $3.9 billion in revenue, up from $4.9 million in net income on $3.8 billion in revenue for the first quarter of 2014.

The company ended the quarter providing or administering coverage for about 6 million people, up from 5.5 million people a year earlier.

Gellert said he feels good about Health Net’s PPACA risk-management program position.

About 319,000 of Health Net’s 391,000 individual coverage holders, or 82 percent, have exchange coverage, Gellert said.

Health Net hopes to get about $270 million from the PPACA reinsurance program for the first quarter. That program is supposed to use a general health plan assessment to help PPACA-compliant individual and small-group plans pay the claims of enrollees with catastrophic health costs in 2014, 2015 and 2016.

Health Net expects to pay $145 million into the PPACA risk-adjustment program, which is supposed to be a permanent program that will use cash from plans with relatively low-risk enrollees to help plans with relatively high-risk enrollees.

The company would like to get from $143 million from the PPPACA risk corridors program, which is supposed to use money from health insurers with good underwriting results in 2014, 2015 and 2016 to help insurers with bad results for those years.

Even if the risk corridors program managers have trouble with finding the cash to pay claims, the risk-adjustment payable and risk corridors program receivable should offset each other, and the government appears to have already raised the cash to make the reinsurance program payments, Gellert said.

“Since it’s next to zero other than the reinsurance, I feel pretty good about it,” Gellert said.

PPACA drafters said they created the PPACA risk-management programs in an effort to encourage insurers to hold down premiums, by insulating them against some of the unexpected, temporary swings in claim risk that might be created by new PPACA programs, product design rules and underwriting design rules.

Some Republicans in Congress have called the risk corridors program a bailout for health insurers. In December, they got a provision restricting program funding signed into law. The provision, part of the Consolidated and Further Continuing Appropriations Act of 2015, prohibits the U.S. Department of Health and Human Services (HHS) from using general revenue to pay for the risk corridors program.

Iowa insurance regulators cited the restriction as one reason for liquidating CoOportunity, a small nonprofit health insurer, earlier this year.

Analysts at Standard & Poor’s Ratings Services suggested last week that the risk corridors program might collect just 10 percent of the cash it needs from insurers with good results to pay the claims filed by health insurers’ bad results.

If the program really ends up paying just 10 percent of the expected amount, which could threaten the stability of some small new insurers, and it could wipe out about 20 percent of the capital of some well-known regional carriers, according to the S&P analysts.

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