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ACA Risk-Adjustment Death Could Squeeze Some Insurers: Fitch

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Big health insurers can all survive serious, lasting problems with the Affordable Care Act risk-adjustment program, according to analysts at Fitch Ratings.

“However, Fitch believes that there are likely to be some non-Blue health plans that will face material capitalization pressure if they must write the entire receivable off,” the analysts say.

Even at the big health insurers that survive serious ACA risk-adjustment program problems with their ratings intact, the turmoil could lead to big price increases, and, possibly, to market withdrawals, the analysts warn.

(Related: New Mexico Insurer Welcomes ACA Risk-Adjustment Freeze)

Bradley Ellis and other analysts at Fitch talk about the impact of ACA risk-adjustment program problems in a new commentary.

The Background

Back in 2008 and 2009, when Congress was drafting the Affordable Care Act, it eliminated many of  the mechanisms health insurers once used to control medical claim risk. It tried to compensate by adding the risk-adjustment program.

The program is supposed to use cash from health insurers in the individual and small-group major medical markets that end up with low-risk enrollees to compensate health insurers that ended up with high-risk enrollees.

A U.S. District Court judge in New Mexico decided in February that the risk-adjustment procedures program managers have been using to redistribute cash are unfair to smaller, newer insurers.

Program managers at the Centers for Medicare and Medicaid Services (CMS) have suspended risk-adjustment program operations while the matter is in litigation.

More on this topic

America’s Health Insurance Plans and the Blue Cross and Blue Shield Association blasted the CMS move to suspend risk-adjustment program operations.

New Mexico Health Connections, the nonprofit health insurer that sued over the ACA risk-adjustment procedures and won the ruling, welcomed CMS suspension of risk-adjustment program operations.

The Fitch Commentary

Suspension of the ACA risk-adjustment program could hurt the insurers that expect to receive money from the program, Ellis and his colleagues write.

The damage should not be enough to cut the ratings of any large, publicly traded health insurers, or to hurt the ratings of any nonprofit or privately held Blue Cross and Blue Shield carriers, the analysts write.

But, for many big health insurers, the 2017 ACA risk-adjustment program receivable is large enough to amount to a significant fraction of their 2017 earnings, the analysts write.

Losing the ACA risk-adjustment receivable could push some of the big health insurers to increase individual major medical or small-group premiums, or to get out of the individual or small-group major medical markets, the analysts write.

Losing the ACA risk-adjustment receivable could also force some of those insurers to increase what they charge for other, related types of insurance, the analysts warn.

— Read 5 Reasons the New ACA Risk-Adjustment Storm Could Blow Over, for Agentson ThinkAdvisor.

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