Small Insurers Under Pressure From ACA Payment Delays

If the administration’s decision to halt risk-adjustment payments isn’t reversed soon, the effects may be more acute on smaller insurers trying to cope with the market instability.

A billboard advertising insurance from Blue Cross Blue Shield of New Mexico stands in front of the company's headquarters in Albuquerque in 2016.
AP Photo/Susan Montoya Bryan
July 12, 2018, 8 p.m.

The Trump administration’s decision to halt another payment to health insurers—which helps them cope with risk on the Obamacare marketplace—has sparked concerns across the health care industry that this will spur even greater market uncertainty.

But insurers without a large financial cushion, such as smaller providers that are owed money under the system, could feel the strain more dramatically. Not receiving expected funds could possibly affect their viability on the marketplace should the freeze last long-term, experts say.

Even for carriers that can withstand not getting the payments immediately, the move increases market instability and could spike rates in 2019.

At the heart of the issue are risk-adjustment payments—a program under Obamacare that transfers funds from insurers with healthier enrollees to carriers with sicker and higher-cost patients. Around $10 billion in payments and collections were halted by the Health and Human Services Department over the weekend after the agency suffered a court loss over the way the department calculates the payments.

While America’s Health Insurance Plans and Blue Cross Blue Shield immediately denounced the administration’s move, experts say that small insurance groups will likely be the ones that cannot afford a large financial hole in the long run.

“Where I think you’re going to see effects potentially fairly quickly, depending on how long this drags on, is not all insurers have big financial cushions, what are called surplus or reserves, to withstand long delays in expected payments,” said Sabrina Corlette, research professor at Georgetown University’s Center on Health Insurance Reforms.

“This is a payment that they have been expecting that’s been logged on their books as revenue if you’re a company that’s supposed to receive under this program,” she added. “If they simply don’t get that money, how many of them have sufficient surplus or reserves to hold out until that money ultimately comes through, if it ever comes through?”

Among the insurance companies that are owed money are giants like Blue Shield of California, which would receive roughly $696 million under the program, according to Centers for Medicare and Medicaid Services data. But other smaller entities, like one of Obamacare’s last member-controlled co-ops, Maine’s Community Health Options, are owed millions under the program.

“I’m concerned that [the payment freeze is] going to further disrupt the market,” said Republican Sen. Susan Collins of Maine. “You could make a case for redoing or doing away with the risk-adjustment corridors, but to do it in this way retroactively, essentially—it’s going to have an impact on rates and then further destabilizes the market.”

The head of the Maine co-op told National Journal he is viewing the current hold as temporary and the insurance carrier will be able to withstand it—but never getting the payment could be a different story. The co-op is owed around $11 million for the 2017 benefit year.

“That’s connected to ultimate success and our ability to continue to thrive in the market,” said Kevin Lewis, president and CEO of Maine’s Community Health Options. “But, you know, at this point I’m looking at it as a delay, given that every indication is that this is a delay, and we can certainly weather a delay.”

A fellow co-op, New Mexico Health Connections, brought the lawsuit against HHS, challenging how the department was calculating the risk payments, and it released a statement in agreement with the administration’s decision to halt payments. While other groups are concerned about uncertainty, the New Mexico co-op argued that there was already unpredictability in the market and that the current formula penalized small insurers. If the program had not been suspended, the group would have to pay $5.5 million for the 2017 benefit year.

“Contrary to what is being said by large insurance companies and their lobbyists who disproportionately benefited from the risk adjuster, this federal court decision is good for small insurance companies and innovative, low-cost insurance companies, and therefore to anyone who purchases health insurance,” the New Mexico co-op said in a statement about CMS’s risk-adjustment-transfer data released earlier this week.

But Lewis said that halting the payments makes the task of setting premiums and predicting the market more difficult. “It is casting greater concern in terms of the overall market and our ability to forecast appropriately for future time periods, and that’s where it gets concerning,” he told National Journal. “It’s more our ability to appropriately set rates and ensure that there’s rate adequacy, and also ensuring that we’re providing the very best value to our members and being true to the market.”

Risk adjustment was not perfect, said Ceci Connolly, president and CEO of Alliance of Community Health Plans, but CMS was working on improving the program. She said the administration’s move to halt the money transfers adds to the volatility in the marketplace and can put a financial strain on some plans.

“Even for the plans that were not expecting a big payment in the fall or that can manage a small loss, that’s not the most important thing,” Connolly said. “For health plans, the most important thing, and the way you successfully run a business, is with predictability, certainty, stability, and they’ve never had that in this market since it’s been created.”

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