Close Close
ThinkAdvisor

Life Health > Health Insurance

S&P analyzes risk corridors shortfall hit

X
Your article was successfully shared with the contacts you provided.

Nineteen U.S. health insurers may have been hoping to get more than $10 million each from the Patient Protection and Affordable Care Act (PPACA) risk corridors program, according to a team at Standard & Poor’s Ratings Services.

An S&P team led by Deep Banerjee crunched the numbers and created a list showing which carriers had recorded the biggest PPACA risk corridors receivables as of June 30, 2015.

PPACA drafters created the risk corridors program to give insurers the confidence to participate in the PPACA exchange program and keep premiums as low as possible. The program is supposed to use cash from exchange plan issuers that do well in 2014, 2015 and 2016 to cushion exchange plan issuers that do poorly in those years against the effects of poor results.

Banerjee’s team predicted in May that the program would collect only enough cash to pay about 10 percent of its obligations.

Officials at the U.S. Department of Health and Human Services (HHS) told state insurance regulators in July to assume the risk corridors program would collect enough cash from thriving insurers to make good on its obligations for 2014, then told insurers in early October that the program had collected only enough cash to pay about 13 percent of the program’s obligations.

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

An official at the Centers for Medicare & Medicaid Services (CMS), an HHS division, said at a hearing earlier this week that officials learned about the severe shortfall only after insurers filed financial reports for 2014 this summer.

See also: CO-OP exec: ‘The long knives came out’ [With video]

The S&P team found that six insurers had recorded risk corridors program receivables over $100 million as of June 30; three had recorded June 30 receivables of $50 million to $100 million; and 10 had recorded receivables from $10 million to $50 million.

Humana (NYSE:HUM), which reported $314 million in net income for the third quarter on $13 billion in revenue, topped the chart with a $376 million risk corridors receivable. The June 30 risk corridors receivable amounted to 4 percent of its capital.

Risk corridors receivables amounted to more than 100 percent of capital at five of the new member-owned, nonprofit Consumer Operated and Oriented Plan (CO-OP) carriers created with PPACA CO-OP loans and two other carriers.

Four of the five CO-OPs with receivable-to-capital ratios over 100 percent are winding down their operations, and the two other companies with ratios at that level have announced major restructurings of their operations.

Receivable-to-capital ratios at the other non-CO-OPs with receivables over $10 million range from 1 percent to 35 percent.

The uncertainty about the risk corridors program payments has been bad for all health insurance market players, the S&P analysts conclude.

If the risk corridors program and two other PPACA “3Rs” programs “don’t function in line with expectations, we believe premium costs for consumers will be more inconsistent and insurance companies will have more volatile operating performance and potential capital strain,” the analysts write.