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Life Health > Health Insurance

S&P: Commercial health may enter rougher waters

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Problems with forecasting Affordable Care Act program obligations could hurt some health insurers, especially small ones. But the commercial health insurance market as a whole looks as if it can handle the waves that might be coming at it in the next few years.

Related: Health giants: Why analysts think they look OK

Analysts at New York-based Standard & Poor’s Ratings Services have given that assessment in two new reports.

A team led by Deep Banerjee looked at the effects of the ACA “three R’s” risk management programs on health insurers.

A team led by Joseph Marinucci looked at the overall midyear outlook for health insurers.

The reports came out as publicly traded health insurers were preparing to post their earnings reports for the second quarter. The earnings release calendar shows Minnetonka, Minnesota-based UnitedHealth Group reporting its results Tuesday morning.

Here are some additional highlights from S&P’s research:

    • The ACA risk corridors program was supposed to use money from thriving ACA exchange plan issuers to help struggling issuers in 2014, 2015 and 2016.

    • The ACA reinsurance program has been using a broad-based payer fee to help issuers of fully ACA-compliant individual coverage with catastrophic claims in 2014, 2015 and 2016.

    • The ACA risk-adjustment program is supposed to use cash from individual and small-group issuers with enrollees with low health risk scores to help issuers with enrollees with high risk scores.

The risk corridors program collected only enough cash to pay less than 13 percent of its 2014 obligations.

The reinsurance program appears to be collected less revenue than program managers had hoped, and as the ACA calls for the program to generate, but the program paid eligible insurers considerably more than they had expected to get for 2014. For 2015, the program appears to be on track to pay issuers about 11 percent more than the issuers had estimated in their 2015 financial statements, the S&P analysts say.

The small, new Consumer Operated and Oriented Plan carriers have had a terrible time projecting risk-adjustment program flows, and the gaps between their forecasts and the actual numbers have amounted to about 20 percent of their capital, the analysts say.

But publicly traded companies and big Blue Cross and Blue Shield carriers seem be using more conservative risk-adjustment program projections, and the gaps between their risk-adjustment estimates and the actual numbers amount to less than 1 percent of their capital, the analysts say.

Two publicly traded carriers, UnitedHealth and Indianapolis-based Anthem, or on track to get a total of $558 million from the risk-adjustment program. Earlier, UnitedHealth had estimated it would get just $131 million from the program, and Anthem had estimated it might have to pay $106 million into the program.

In the market outlook report, the analysts say commercial health insurance may go through a few turbulent years, as insurers continue to adjust to new information about how the ACA works. But ACA underwriting rules, employment growth, and employers’ interest in sending workers into the individual exchange appear to make the individual market more viable and more attractive than it used to be, the analysts say.

Analysts predict that results will be “near to below average for most lines of business.”

The Medicare and managed Medicaid markets look attractive, but the analysts note that they would rather not see an issuer be overly reliant on Medicare products or Medicaid products.

State Medicaid reimbursement levels “can rise or fall according to budget and political pressures in each state,” the analysts say. “Reduced reimbursements can significantly diminish a Medicaid insurer’s profitability.”


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