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Analyst: 'Good PPACA reinsurance news' is not so good

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Federal regulators say a big new government health reinsurance program, or insurance program for insurers, has enough money to pay health insurers more than it had promised.

But a securities analyst says the news will do little to help health insurer stocks, because insurers were already counting on the program to be fully funded.

For agents and brokers in the commercial market, continuing uncertainty about the Patient Protection and Affordable Care Act (PPACA) reinsurance program and two other PPACA risk-management programs means that the stability of the commercial health insurance market is still in doubt.

The news

The Center for Consumer Information & Insurance Oversight (CCIIO) announced Wednesday that the reinsurance program has enough cash to pay 100 percent of eligible reinsured claims costs.

What’s CCIIO?

CCIIO is the division of the U.S. Department of Health and Human Services (HHS) in charge of running the PPACA programs that affect the commercial health insurance market.

What’s new about the news?

Originally, program managers had promised to pay just 80 percent of the cost of non-grandfathered individual market claims above an “attachment point,” or reinsurance deductible, of $45,000, and below a cap of $250,000. 

The program was supposed to help health insurers cope with the possibility that the new PPACA product design and pricing rules could lead to a flood of patients who needed organ transplants and expensive medications. Some insurers have reported that 2014 claims were extremely high, and that many of the people who gained insurance under the new rules had conditions such as hepatitis C and HIV.

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CCIIO officials did not give any information in the memo about how many PPACA reinsurance claims they have received, or how much money insurers have been seeking through the program.

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In April, CCIIO said that HHS had received $8.7 billion in reinsurance fee money from health insurers, and that it hoped to get another $1 billion by Nov. 15.

CCIIO has also said that it will tell insurers how much reinsurance money they will get for 2014 on June 30.

See also: CCIIO posts grandmothering relief numbers

In the new memo, CCIIO referred to the $8.7 billion reinsurance program revenue estimate, but they did not give any new information about how much money the program has, and they did not mention two other PPACA risk-management programs, a risk-adjustment program and a risk corridors profit margin protection program.

The view from Wall Street

Brian Wright, a securities analyst at Sterne Agee CRT, says many big, publicly traded health insurers have already been assuming that the reinsurance program would pay 100 percent of the value of the eligible reinsured claims.

Wright estimated that, even if an insurer had been counting on getting only 80 cents on the dollar for the claimed amounts, getting coverage for the full value would get a big insurer an extra amount equal to about 15 cents to 20 cents per share, or about 10 percent of typical quarterly earnings.

But Wright’s estimates imply that the full value of a PPACA reinsurance program payment could equal about 50 percent of a big insurer’s quarterly earnings, or about 13 percent of annual earnings.

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