The U.S. Supreme Court could soon issue a ruling, on King vs. Burwell (Case Number 14-114), that could put any health insurers with big individual health insurance operations in an actuarial blender.
Problems with the three big Patient Protection and Affordable Care Act of 2010 (PPACA) risk-management programs could put insurers through a three R’s food processor.
In theory, as the insurers are dealing with PPACA-related confusion, Middle East respiratory syndrome (MERS) claims could pour in the door, as mandatory quarantines force insurers to have many employees work at home, as everyone else is working at home and clogging up home Internet access services.
And, in 2014, before the big storms came, as a few drops of PPACA rain began to fall, two health carriers failed: South Carolina Health Cooperative, a nonprofit, employer-member-owned multiple employer welfare arrangement (MEWA) that had no reinsurer or guaranty association backing for any kind, and CoOportunity, a nonprofit, member-owned PPACA CO-OP insurer that did have guaranty association backing.
Guaranty associations are the organizations that are supposed to step in and take over responsibility for claims when insurers collapse. The guaranty associations play a role for the insurance industry that’s similar to the role the Federal Deposit Insurance Corp. (FDIC) plays in the banking industry.
CoOportunity had about 100,000 enrollees in Iowa and Nebraska in late 2014, before news of financial problems surfaced, and insurance regulators said the guaranty associations in the states would have to deal with about $80 million in unpaid claims that had piled up, or about $800 in unpaid claims per enrollee.
Regulators tried to get as many CoOportunity enrollees to shift into new plans as possible in the weeks before the plan was liquidated, but the company still had about 13,000 enrollees when it entered liquidation. The rules are complicated, but, in theory, the guaranty associations could be covering some enrollees for up to six months, and they could have to provide up to $500,000 in benefits protection for some enrollees.
The CoOportunity story, and the storm clouds gathering on the horizon, raise the question: What happens if many health plans fail at the same time? Could the failure of one health insurer somehow lead to a series of failures, by exposing solvent but shaky insurers to big guaranty association assessment bills at the worst possible time?
For a brief look at the guaranty associations that are supposed to protect the policyholders when insurers fail, read on.
1. Each state has a life and health guaranty association that’s walled off from the property-casualty guaranty association, and the life and health associations separate health obligations from life and annuity obligations.
The National Association of Insurance Commissioners (NAIC) adopted the current update of Model 520, the Life and Health Insurance Guaranty Association Model Act, in 2009.
Most states have adopted guaranty association rules based on Model 520, according to meeting minutes from an NAIC working group meeting that took place in October 2014.
The model sets a limit of $300,000 in guaranty fund benefits protection per long-term care insurance (LTCI) insured, and a $500,000 limit per major medical insured.
Each licensed life and health insurer in a state belongs to the state’s guaranty association, and each association member is supposed to share responsibility for helping to provide benefits protection for the insureds of the insurers that fail.
State guaranty funds may set different limits on guaranty fund protection, In Iowa, for example, the guaranty fund is providing only six months of protection for CoOportunity enrollees. The enrollees have to find other coverage within six months.