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Moda shrinks, Aetna rises, analysts watch

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Problems with selling individual health insurance products in the new regulatory system have forced a midsize Northwestern carrier to pull out of Washington state, and executives at Aetna (NYSE:AET) to wince.

Moda Health, an arm of a dental insurer in Portland, Ore., announced Wednesday that it will continue to sell health coverage in Oregon and Alaska, but that it will pull out of the Washington state market.

Moda said it will fulfill all individual Washington state contracts signed or renewed before Oct. 31, 2015, until they expire. Similarly, the company will fulfill all existing group contracts in the state that were signed or renewed before Oct. 31, 2015, with an effective date before Jan. 1, 2016, until they expire according to their terms.

The Centers for Medicare & Medicaid Services (CMS) recently said the Patient Protection and Affordable Care Act (PPACA) risk corridors program can pay only about 13 percent of the amount the program owes insurers. The program is supposed to use cash from thriving PPACA exchange plan issuers to help issuers with struggling exchange plans. Too few issuers did well to meet obligations to the issuers that did poorly.

Moda was hoping to get $89.5 million from the program but will get just $11.3 million, the company said.

“This is a significant disappointment, of course,” the company said.

The company said it will modify some of the products it continues to sell in Oregon and Alaska to incorporate what it has learned about the PPACA marketplace and its implementation.

“We continue to work closely with CMS and state insurance regulators to patiently and prudently sort through the various effects of the 2014 risk corridor payment reduction and to agree on necessary actions,” the company said in a statement.

But Moda has about $3 billion in annual revenue, and diverse sources of revenue, the company noted.

PPACA “is a work in progress, sometimes rewarding, sometimes frustrating, but we are confident that things will settle down in a year or two, and the important goals of the act will be achieved,” the company said.

Meanwhile, Aetna Chairman Mark Bertolini and other Aetna executives seemed apologetic today as they discussed the performance of their exchange plan program with securities analysts.

Analysts are reporting $562 million in net income for the third quarter on $15 billion in revenue, compared with $599 million in net income on $15 billion in revenue for the third quarter of 2014.

“The individual business remains challenging, especially in light of the continued administrative changes for this new and developing membership pool,” Bertolini said in previously prepared remarks during the call. “Despite these challenges, we continue to work constructively with CMS and the states to serve our 1.1 million individual members.”

Later, Bertolini said Aetna believes the public exchange system has “long-term market potential” and that “it’s way too early to call it quits.”

“I’ll remind everybody it’s just a little over 6 percent of our operating revenue,” he said.

At another point, an analyst asked, “Is it safe to assume that you’re not making money on the exchanges?”

“Yes,” said Shawn Guertin, the company’s chief financial officer. “Yes. That’s safe to assume.”

Meanwhile, Stephen Zaharuk, a Moody’s analyst, wrote in a health insurance market commentary that his company believes health insurers will continue to face pressure from regulation, and especially from the cost of mandated benefits.

Especially in the individual health insurance market, “revising benefits is not feasible because benefit levels are regulated,” Zaharuk wrote. 

Insurers may be able to make up for the benefits mandates by using narrow, efficiently priced networks, but regulators in some states have pushed back against that approach, he said.

“On the 2016 presidential campaign trail, some candidates are proposing additional benefits, which would further pressure premiums,” Zaharuk said. “Compounding the problem are proposals seeking more regulatory authority to limit premium increases, which will further diminish the profitability of these products.”


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