U.S. health insurers have been borrowing money in the past few years to cope with Patient Protection and Affordable Care Act (PPACA) cash-flow headaches, according to analysts at A.M. Best Rating Services.
The average ratio of borrowed money to capital at the health operating companies the analysts track increased to 5.2 percent in 2015, from 3.2 percent in 2011, the analysts write in a new report.
The total amount of borrowed money on the insurers’ balance sheets increased to $6.4 billion, from $3.3 billion, over that same period.
Insurers have borrowed some of the money to pay for acquisitions.
But the A.M. Best analysts say insurers are also using debt to handle PPACA-related gaps between when they have to pay claims and when cash arrives.
PPACA created three risk management programs for insurers and two big PPACA exchange coverage subsidy programs.
The PPACA “three R’s” risk management programs are a reinsurance program that uses a broad-based tax on insurers to help individual coverage issuers pay the bills of enrollees with catastrophic claims in 2014, 2015 and 2016; a risk corridors program that’s supposed to use cash from thriving PPACA exchange plan issuers to help issuers that have struggled, or will struggle, in 2014, 2015 or 2016; and a risk-adjustment program that’s supposed to shift cash from issuers with low-risk enrollees to issuers with high-risk enrollees.
The two subsidy programs are the advance premium tax credit program and the cost-sharing reduction program.
The Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health and Human Services (HHS), warned insurers in October 2015 that it had collected only enough risk corridors program cash for 2014 to pay them about 13 percent of what it owed them for 2015.
CMS has also been making the payments associated with the PPACA reinsurance program and the PPACA risk-adjustment program retroactively, the A.M. Best analysts say.
“In addition,” the analysts say, “there have been some timing fluctuations in payments of direct government premium subsidies.”
Because of the government program payment delays and fluctuations, “the health insurance carriers offering exchange products had to utilize more of their own liquid funds to pay claims, while recording sizable receivables for future payments from the government,” the analysts say.
But the biggest insurers have used up only about half of their borrowing capacity, and low interest rates have helped insurers minimize the cost of borrowing, the analysts say.
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