Some health insurers seemed to have more problems estimating what they would get from two big new federal risk-management programs than others, but it’s not clear what that means.
Analysts at Standard & Poor’s Ratings Services (S&P) have digested the data in a big, unwieldy federal report on the Patient Protection and Affordable Care Act (PPACA) reinsurance and PPACA risk-adjustment programs into a collection of short, easier-to-interpret tables.
The programs are two of the three programs that PPACA watchers have dubbed the “three R’s” programs.
PPACA drafters hoped the programs would act as lifeboats for health insurers, to keep confusion about PPACA changes from killing companies off. But officials at the Centers for Medicare & Medicaid Services (CMS) warned early on, while they were designing the program, that, in some cases, glitches in the complicated new programs could lead to unintended consequences, or even push some insurers into insolvency.
At publicly trade health insurers, for example, the reinsurance and risk-adjustment programs could lead to cash flows ranging from an outflow for 2014 of about $31 million at Centene Corp. (NYSE:CNC) to an inflow of about $586 million at Anthem Inc. (NYSE:ANTM), the S&P analysts say. The ratio of total estimated flows for the two programs to reported capital ranges from a cut equal to 1.6 percent of capital at Centene to a gain equal to 7.9 percent of capital at Health Net Inc. (NYSE:HNT).
“On average,” the S&P analysts say, “the two R’s account for less than 1 percent of reported year-end capital of the publics.”
But most health insurers have quarterly net income figures that are much smaller than their reported capital levels, and the risk program flows could look different when expressed as a share of second-quarter or first-half net income.
S&P analysts estimate that the risk-adjustment program could lead to about $2.3 billion in cash transfers.
The temporary reinsurance program is supposed to use flat per-enrollee fees from all insurers to help individual policy issuers with enrollees with catastrophic costs. The risk-adjustment program is supposed to shift money from exchange plan issuers with relatively low-risk enrollees to issuers with relatively high-risk enrollees.