Experts: If health insurers' safeguard goes broke, consumers could pay
The Obama administration promised it would cover financial losses for health insurance companies that were taking a risk by selling plans on the Affordable Care Act's untested insurance marketplaces.
Policyholders could be the ones on the hook for losses in coming years, though.
Concern is growing among insurers, analysts and industry observers that the so-called Risk Corridor program set up under the 2010 health law to make selling Obamacare plans less risky for insurers — and entice carriers to keep their premium prices low — could backfire because it might run out of money.
Consumers would pay the difference in higher premiums because insurers will raise prices in later years if they have to cover earlier losses, experts said.
“There is a likelihood that premiums will go up” if insurance companies can't recoup the money, said Deep Banerjee, an analyst with Standard & Poor's.
It had some of the lowest-priced plans in the country, but it generated big losses on many of those new customers — many of whom were older and used more medical services than Highmark expected, the company has said.
The Blue Cross company this month said it expects to collect $155 million from the government's Risk Corridor program.
It was supposed to work by taking money from insurance companies that made more money than expected through marketplace sales and distribute it to companies that lost more than anticipated. The problem is, Banerjee said: “More insurance plans did worse than expected on their exchange business.”
Highmark spokesman Aaron Billger said the company is “confident that those funds will be fully recovered.”
“The Risk Corridor will not be a determinant of rates,” he said. “Our rates will be set to cover the actual cost to administer and insure individuals.”
To make matters worse, President Obama in December signed a short-term budget bill requiring that the Risk Corridor be budget neutral, meaning if the incoming funding doesn't cover the money going out, the government can't tap other sources to cover the shortfall.
“We anticipate that Risk Corridors collections will be sufficient to pay for all ... payments,” the Department of Health and Human Services said in guidance to insurers last year.
The temporary, three-year program plans to cover greater-than-expected losses in earlier years with payments from later years, the department said.
“Insurers that had worse-than-expected results will certainly get some money,” said Larry Levitt, senior vice president at the Kaiser Family Foundation, a nonprofit, nonpartisan research organization in California. “But they don't know if they'll get all that they hoped for.”
Most insurers haven't publicly detailed the amounts they expect to be reimbursed. UPMC Health Plan and Aetna Inc., which also sold plans on HealthCare.gov in Pennsylvania, declined to provide numbers.
“There is uncertainty, and we prefer not to speculate,” UPMC Chief Financial Officer Robert DeMichiei said. “We will continue to monitor and evaluate whether or not these payments will be realizable and paid going forward.”
A few have put out figures. Louisville, Ky.-based Humana, a national for-profit health insurer, said in its most recent financial report that it was owed $51 million from the Risk Corridor for 2014.
Indianapolis-based Anthem Inc., the nation's largest Blue Cross company, told analysts in January it expected a “very slight” payment from the program.
“On the Risk Corridor, we had a very slight receivable,” Chief Financial Officer Wayne DeVeydt said on a conference call. “Our concern is whether collectability will ultimately be there.”
The company declined to provide exact numbers.
A list compiled by insurance rating company A.M. Best looked at 10 health plans from across the country that had publicly disclosed Risk Corridor claims. The total amount due to those 10 companies was $240.7 million, according to A.M. Best.
“If the government does not collect enough funds resulting in Risk Corridors payments being significantly reduced or eliminated, some carriers may face write-downs of the Risk Corridors receivable asset and subsequent deterioration of their capital position,” A.M. Best noted in a March report.
Banerjee has seen the numbers for about 90 percent of the insurers that sold Obamacare plans last year. And he said the amount owed insurers “was much higher” than the amount the program stands to collect.
“The difference is significant,” he said, though he declined to provide any specific figures because the numbers have not been made public.
“It was the first year of the exchange. There were a lot of things they (insurance companies) didn't know about,” he said. “They needed to make assumptions and they turned out to not be correct.”
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.