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Health insurance refund program underfunded, report finds

| Friday, May 1, 2015, 10:03 a.m.

A government program established under the Affordable Care Act to reimburse health insurers for financial losses is “significantly underfunded,” which increases the chances that policyholders will pay higher premiums in coming years, according to a Standard & Poor's report published Friday.

The S&P analysis, which found that the program could have less than 10 percent of the money needed, was released five days after the Tribune-Review reported about the shortfall in the government's Risk Corridor program.

Established as part of President Obama's health care law, the program intended to reduce the risk insurers face from selling health plans to individuals for the first time in online marketplaces. By reimbursing losses in early years of health reform, the government hoped to keep premium prices from rising quickly.

The Risk Corridor works by taking in money from insurers that make more than they expect and using it to reimburse companies with bigger-than-expected losses. But few carriers were profitable in the first year of marketplace sales, including Downtown-based Highmark Inc., the state's largest health insurer, which has said it hopes to collect $155 million in Risk Corridor funding.

“We estimate that the ACA Risk Corridor will not receive adequate monies from insurers with profitable exchange business to pay insurers that have unprofitable exchange business,” S&P said.

The New York-based credit rating company's report listed 15 health insurers that said they expect to collect a total of $813 million. Not included in the list are Highmark or UPMC Health Plan, which did not account for the amounts they hope to receive in financial statements.

“Several insurers that may be eligible for corridor payments were conservative and did not record any receivables,” the report states. “This indicates that the actual aggregate payments due to insurers from the corridor are likely even higher.”

The Department of Health and Human Services has said that it expects to cover shortfalls in the first year from gains in later years of the three-year program. But S&P said it doesn't expect the marketplace business to be profitable enough for most insurers to offset early losses.

“We believe premium costs for consumers will be more inconsistent” without certainty about whether insurers will collect the expected funding, S&P said.

Dan Mendelson, president of Washington consulting firm Avalere Health, said he isn't concerned about insurers being able to collect the money; it may just take longer.

“The full faith and credit of the federal government is at risk here, and they're going to make good,” he said.

In the meantime, companies that are owed Risk Corridor funds may raise premiums next year, but it won't be directly related the program's shortfall, Mendelson said.

“A plan that's drawing heavily from the Risk Corridor money might have underestimated how severely ill the patient population was going to be,” he said. “Plans need to play catchup to more accurately capture the risk.”

Sen. Bob Casey, D-Scranton, thinks the problem “deserves consideration and attention from members of Congress and the (Obama) administration,” spokesman John Rizzo said.

“It's critical that these elements of the law function properly,” he said.

Meanwhile, a Milwaukee, Wis.-based insurer said it will sell or shut down its health insurance division because of heavy losses from selling policies under the health law.

Assurant Inc. is expected to report an operating loss of up to $90 million in the first quarter following a loss of $64 million last year from selling online marketplace plans to individuals in 41 states.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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