Some small health insurers say that an Affordable Care Act program that was supposed to help make the major medical insurance market more fair may kill them.
The ACA calls for the program, the risk-adjustment program, to use cash from individual and small-group major medical issuers with relatively healthy enrollees to help issuers with relatively sick enrollees.
The Centers for Medicare & Medicaid Services published the risk-adjustment program cash transfer estimates last week.
Regulators in Connecticut today responded to the new risk-adjustment transfer announcement by putting an issuer in that state, HealthyCT, under supervision.
CMS told HealthyCT — a small, nonprofit, member-owned carrier with about 40,000 enrollees — that it will have to send $13.4 million, or about $300 per enrollee, to the risk-adjustment program.
“It became evident that this risk-adjustment mandate would put the company under significant financial strain,” Katharine Wade, Connecticut’s insurance commissioner says in a statement.
ACA risk programs
CMS said in the risk program announcement that 531 issuers of ordinary individual major medical coverage will participate in the ACA risk-adjustment program for 2015.
The plans with what appear to be low-risk enrollees are supposed to pay an amount equal to about 10 percent of all of the individual major medical premiums collected in 2015 into the program. The program is then supposed to pay the cash out to plans with what appear to be high-risk enrollees.
A second ACA risk management program, a temporary reinsurance program, uses cash from a fee imposed on all issuers to help pay the bills of individual coverage holders who file catastrophic claims in 2014, 2015 or 2016.
The ACA reinsurance program will pay about $7.8 billion to 497 issuers that have asked the ACA reinsurance program to cover $14.3 billion in 2015 catastrophic medical claims, or 55.1 percent of the total, CMS says.
In the new announcement, CMS says it expects to collect only $6.5 billion.
For 2015, the program will pay insurers more than the law requires, but less than some issuers might have hoped.
The ACA requires the ACA reinsurance program to pay only 50 percent of the eligible 2015 catastrophic claim costs. The program had enough more than enough cash to pay all of the eligible catastrophic claim costs for 2014, and it ended up with $1.7 billion in cash left over.
The program is on track to collect $6.5 billion in reinsurance fees for 2015. The program will need the money left over from the 2014 benefit year to come up with $7.8 billion in benefits cash for 2015, CMS says.
The specific amounts given in the risk-adjustment program and reinsurance program announcement are estimates. Issuers can file appeals.
Two groups for small insurers, the National Alliance of State Health CO-OPs and the Consumers for Health Options, Insurance Coverage in Exchanges in States Coalition, are attacking the methods CMS used to come up with the risk-adjustment program numbers.
Kelly Crowe, chief executive officer of NASHCO, a group for plans started with ACA Consumer Operated and Oriented Program loan money, said in a statement that the risk-adjustment program is “anything but a market-stabilizing program.”
“As currently designed, risk adjustment will only lead to reduced competition [and] higher premium rates,” Crowe said.
CHOICES says the current risk-adjustment formula discriminates against new, rapidly growing plans that have little information they can use to show how risky their enrollees are.
New York state examples
In New York state, one big issuer, Empire HealthChoice HMO Inc., a unit of Indianapolis-based Anthem, may get $40 million in ACA reinsurance benefits for 2015, pay $32 million into the individual market risk-adjustment program, and pay $1.2 million into the small-group risk-adjustment program.
Aetna Health Inc., a unit of Hartford-based Aetna, is not eligible for reinsurance program money and does not have to pay into the individual risk-adjustment program fund, but it may have to pay $2.2 million into the small-group risk-adjustment fund.
Oscar Insurance Corp., a New York-based company backed by venture capital funds, may get $20 million in reinsurance help and owe $31 million to the individual risk-adjustment fund.
Health Republic Insurance of New York, a company that failed, is supposed to get $52 million in reinsurance money but pay about $191 million into the individual and small-group risk-adjustment funds.
Executives testified at a New York state hearing earlier this year that they have concerns about what risk-adjustment program managers will do about issuers that fail.
HealthyCT, a company started with loans from the ACA Consumer Operated and Oriented Plan program, is on track to get about $11 million in ACA reinsurance program cash, the strain of having to make more than $13 million in risk-adjustment payments is too much for the insurer to handle, officials said.
HealthyCT will have to shut down at the end of the year, and its 13,000 individual policyholders will have to find new coverage in 2017, officials said.
HealthyCT cannot write new group business or group renewal business after Aug. 1, and sponsors of HealthyCT group plans that come up for renewal on or after Aug. 1 will have to find new coverage providers, officials said.
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