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Feds: PPACA risk program may pay just 13% of 2014 claims

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A major Patient Protection and Affordable Care Act (PPACA) insurer risk-management program may pay eligible insurers less than $362 million of the $2.9 billion in cash they were hoping to collect.

Officials at the Center for Consumer Information & Insurance Oversight (CCIIO), the division of the Centers for Medicare & Medicaid Services (CMS) responsible for running the PPACA programs that affect the commercial health insurance market, announced the risk corridors program revenue shortfall Thursday, in a memo posted on the CCIIO section of the CMS website.

The risk corridors program is supposed to use PPACA exchange plan issues with good operating earnings in 2014, 2015 and 2016 to help insurers that get weak operating results during those years.

Whether the risk corridors program can come up with the cash to pay ailing health insurers as much as $362 million will depend on how well the government does at getting thriving health insurers to pay into the program, officials say.

Officials earlier complained about the quality of the risk corridors program data submissions, and they said about half the insurers had worked on short notice to improve and resubmit their data.

Program managers will begin collecting on payables in November and sending the cash it gets to the insurers owed the receivables in December, officials say.

Earlier this year, analysts at Standard & Poor’s Ratings Services (S&P) estimated the program might get in only enough cash to pay 10 cents on the dollar. 

See also: S&P sees PPACA risk corridors program funding gap

Officials at CMS, an arm of the U.S. Department of Health and Human Services (HHS), increased the amount of claims eligible for benefits from another PPACA risk-management program, a reinsurance program, and they also announced that, even though the reinsurance program had generated too little revenue to pay as much extra cash into the U.S. Treasury as hoped, it had earned more than enough to pay eligible 2014 claims. Some hoped that might be a sign CMS could also find a way to pay a large share of the risk corridors program obligations.

Kevin Counihan, the CCIIO director, told state insurance regulators in July that they should take the risk corridors program into account when reviewing health rate proposals for 2016.

“As stated in our final payment notice for 2016, ‘We anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments,’” Counihan wrote in the letter.

It’s not yet clear how the risk corridors shortfall will affect health insurers. The shortfall amounts to 5.7 percent of the $44 billion in individual major medical insurance earned premiums that insurers reported to regulators for 2014, according to National Association of Insurance Commissioners (NAIC) market data.

Risk corridors shortfalls could be much bigger for some companies than for others, and they could account for a bigger share of capital and surplus for some companies than others. CMS regulators have implied in guidance that they believe their decisions about the PPACA risk-management programs could cause a “substantial” impact on some insurers. Nevada cited uncertainty about the risk corridors program recently when they began the process of appointing a receiver for a small, struggling insurer in their state.

See also: Insurers can change risk-adjustment data, if that hurts and Nevada regulators ask to put CO-OP in rehab

In addition to setting up the public exchange system, PPACA has banned use of personal information other than location in the sale of major medical coverage, and use of personal information other than location and tobacco use in the pricing of major medical coverage. Many earlier efforts to limit medical underwriting and set up health insurance exchange programs have failed, in part because of big, unexpected, difficult-to-control swings in health risk.

PPACA drafters added the risk corridors program and two other “three R’s programs,” a temporary reinsurance program and a permanent risk-adjustment program, to help protect insurers against those sorts of swings in risk, and to give insurance company managers the confidence to keep assumptions about the future as generous as possible when they were setting rates.

The U.S. Department of Health and Human Services (HHS), the parent of CMS, later used an increase in the generosity of the risk corridors program to compensate insurers for decisions to postpone the effective date of some PPACA rules that had the potential to affect health claim costs. HHS determined that an insurer could collect cash from the program if it reported an operating profit margin under 5 percent. Originally, the risk corridors program was going to help only insurers with margins under 3 percent.

Health insurers initially expected CMS, an arm of the U.S. Department of Health and Human Services (HHS), to find ways to use HHS money to meet all risk corridors program obligations for 2014, even if payments into the program from thriving insurers were lower than expected. Former HHS Secretary Kathleen Sebelius later told insurers that HHS expected the risk corridors program in a “budget neutral” way, without drawing on general federal revenue.

See also: Actuaries slam risk corridor proposal

Health insurers blasted the move to make the program budget neutral, but Republicans blocked efforts to shore up funding by portraying the program as an insurer bailout program.

See also: Lawmaker takes on PPACA risk program