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New ACA Risk Report Hits Some Health Insurers With Huge Bills

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The federal government today published a report that could push some health insurers out of the major medical insurance market by the end of the year.

The report shows how much cash health insurers can hope to get from the Affordable Care Act reinsurance and risk-adjustment programs for 2016 — and how much they might have to pay into the ACA risk-adjustment program.

(Related: 10 Top ACA Individual Risk-Adjustment Bills)

A quick scan of the report shows that the list of carriers that may owe payments of more than $100 million in risk-adjustment payments for either the individual health insurance market or the small-group market includes Molina Healthcare and Kaiser Foundation Health Plan Inc. in California; Celtic Insurance Company, Molina Healthcare and Coventry Health Care in Florida; and Molina Healthcare in Texas.

Many more insurers owe payments in the $50 million to $100 million range.

Others are on track to receive more than $50 million in risk-adjustment program payments. Some of those insurers could suffer if the carriers that are supposed to feed cash into the risk-adjustment program in a given market fail to do so.

A copy of the report is available here.

ACA Risk Management Programs

The ACA reinsurance program is a temporary insurer risk management program that expired at the end of 2016.

ACA reinsurance program managers at the Centers for Medicare and Medicaid Services  have been funding that program by collecting a flat fee for just about every health plan enrollee in the country. Managers use the cash to make help pay some of the bills for users of individual major medical coverage who have huge claims.

Insurers have already paid most of their ACA reinsurance bills. The June 30 report lists only the amounts insurers can hope to get from the reinsurance program, not any reinsurance program payment obligations.

A second ACA risk management program, the ACA risk-adjustment program, is supposed to even out health risk levels for issuers of individual and small-group coverage, to help issuers that end up with more than their fair share of older, sicker enrollees.

CMS risk-adjustment program managers give each enrollee a health risk score.

An insurer with low-risk enrollees is supposed to send cash to CMS. CMS then sends risk-adjustment cash to the insurers in a market with high-risk enrollees.

Risk-Adjustment Bills

The new risk management program report shows that some insurers that faced huge risk-adjustment bills for 2015 found ways to slash their 2016 risk-adjustment bills.

Dollar (Image: Thinkstock)

(Image: Thinkstock)

Humana Inc., for example, cut the risk-adjustment bill for a unit in Florida to less than $1.6 million for 2016, from $135 million for 2015.

Other issuers still have very high bills.

Kaiser may have to pay about $437 million in individual and small-group risk-adjustment bills in California, while collecting just $99 million in ACA reinsurance money.

Molina’s Florida unit might get $25 million in reinsurance program cash and pay $253 million in cash into the risk-adjustment program. The 2016 Forida payment is higher than Molina’s 2015 Florida payment. For 2015, Molina paid $219 million into the risk-adjustment program.

Molina may have already set aside enough reserves to cover the payment obligations. It reported in March that it expected to owe about $522 million in risk-adjustment payments for the entire country for 2016.

The size of the obligation means, however, that Molina may have to send about $1,000 per Fflorida enrollee to its competitors for 2016.

Reinsurance Revenue

The ACA reinsurance program should collect enough revenue this year to pay all of its obligations to insurers for the final program year, officials say.

Originally, the program was supposed to generate operating gains and send billions of dollars in extra cash to U.S. Treasury.

(Related: GAO Reinsurance Ruling Could Cost Health Insurers $2 Billion)

The program does not appear to be on track to generate enough revenue both to pay the reinsurance program obligations and send billions of dollars in extra cash to the Treasury.

In the past, ome Republicans in Congress have argued that the ACA reinsurance program should send cash to the Treasury first, before it makes reinsurance program payments to insurers.

Overall Market Performance

CMS officials argue that, overall, the ACA risk management programs worked well.

The programs affect only coverage written under the ACA rules that took effect in January 2014.

The average premium for ACA-compliant individual coverage increased just 7.4% between 2015 and 2016, to about $392.

Insurers are on track to transfer about 11% of their individual premiums through the risk-adjustment program for 2016, up a little from 10% for 2014 and 2015.

Transfers in the small-group market could hold steady at about 6%.

Risk-adjustment cash seems to be flowing in the right directions, in the right amounts, in ways that correlate well with differences in enrollees’ medical bills, CMS officials say.

— Read Senate Confirms Seema Verma as CMS Administrator on ThinkAdvisor.