Blue Cross and Blue Shield plans—seen as the backbone of the ACA marketplaces—have been among the biggest beneficiaries of the insurer support programs.

July 6—Recently announced reinsurance and risk adjustment amounts covering 2015 for federally compliant health plans have threatened to topple at least two more not-for-profit CO-OP health plans.

The Centers for Medicare & Medicaid Services (CMS) released a report on June 30 that provided preliminary reinsurance and risk adjustment amounts for specific health plans. The announcement included results for the transitional reinsurance program, which was established by the Affordable Care Act (ACA) to redistribute funds among health insurers as a means of stabilizing premiums in the individual health insurance market from 2014 through 2016.

Also announced were results for the permanent risk adjustment program, also created by the ACA, which transfers funds from individual and small-group plans with lower-risk enrollees to plans with higher-risk enrollees. The risk adjustment program aims to encourage value- and efficiency-based competition among ACA plans as opposed to a strategy of seeking to attract healthier enrollees.

Insurers will use the reinsurance and risk adjustment amounts to calculate their risk corridor payments and medical loss ratio rebates, if any.

But the short-term impact of the latest results of the two ACA programs sent at least two wobbly CO-OP plans over the edge.

The Connecticut Insurance Department on July 5 prohibited HealthyCT from writing any new business because a $13.4 million required risk adjustment payment had jeopardized the CO-OP’s financial position.

“As a result, it became evident that this risk adjustment mandate would put the company under significant financial strain,” Insurance Commissioner Katharine L. Wade said in a release. “This order of supervision provides for an orderly run-off of the company’s claim payment under close regulatory oversight.”

Similarly, the Illinois Department of Insurance recently ordered Land of Lincoln (LLH), an Illinois CO-OP, to withhold the $31.8 million it owes under the ACA’s risk adjustment program.

The order “was issued to preserve the solvency of LLH consistent with the well settled solvency oversight requirements found under Illinois and federal law and is designed to prevent an immediate liquidation of LLH,” Anne Melissa Dowling, the agency’s acting director, wrote in a letter.

The dire financial conditions of the two insurers followed the collapse of 13 of the 23 CO-OPs that were established through the ACA and funded with $2.4 billion in loans. Several of the failed CO-OPs blasted the ACA insurer-support programs for unfairly penalizing them.

“The argument has been for a while from the CO-OPs and other smaller insurers that risk adjustment is disfavoring them the way it is currently structured,” Ed Haislmaier, a senior research fellow at the Heritage Foundation, said in an interview.

Analyses by Haislmaier and colleagues have found some 2014 evidence to support the claim that the risk adjustment program is structured in such a way that it ends up providing payments to plans with fewer sick enrollees while taking funds from those with higher shares of sick enrollees—the opposite of the program’s intent.

“What we have seen so far indicates that there may be some merit to the argument made by the CO-OPs and the smaller insurers” that the risk adjustment program puts them at a disadvantage compared to larger insurers, Haislmaier said.

Blues Benefit

Very large Blue Cross and Blue Shield plans generally dominated payouts from both the reinsurance and risk adjustment programs.

Some of the largest recipients of reinsurance payments were Blue Cross of California ($325 million), Kaiser Foundation of California ($194 million), Blue Shield of California ($282 million), Blue Cross and Blue Shield of Florida ($204 million), Humana of Florida ($137 million), Humana of Georgia ($214 million), Blue Cross and Blue Shield of Illinois ($283 million), Blue Cross and Blue Shield of Minnesota ($126 million), Blue Cross and Blue Shield of North Carolina ($223 million), Blue Cross and Blue Shield of Tennessee ($125 million), and Blue Cross and Blue Shield of Texas ($637 million).

Among the biggest recipients of risk adjustment payments in the individual market were Blue Shield of California ($182 million), Health Net of California ($126 million), Blue Cross and Blue Shield of Florida ($369 million), and Blue Cross and Blue Shield of Michigan ($84 million).

Meanwhile the biggest payers into the risk adjustment program in the individual market were Kaiser Foundation of California ($82 million), Humana Medical Plans of Florida ($135 million), Molina of Florida ($219 million), and Coventry of Florida ($111 million). Among the biggest contributors in the small-group market were Kaiser of California ($87 million), Aetna of New York ($93 million), and the Freelancers of New York ($154 million).

Most of the CO-OPs owed sizable risk adjustment payments, including $24 million from Evergreen Health Cooperative and $46 million from the Freelancers CO-OP of New Jersey.

The CMS report noted that small and large insurers received similar risk adjustment transfers overall, but there was much greater dispersion of the funds among small insurers. Also noted was that risk scores increased by less than 4 percent from 2014 to 2015, a lower increase than CMS was expecting given that second-year enrollees signed up for longer periods of time and therefore would be expected to have a higher number of reported diagnoses.

Haislmaier said the preliminary risk corridor results and his own analyses indicated that the Blue Cross and Blue Shield (BCBS) plans are better equipped to compete in the ACA marketplaces.

“The way the [risk adjustment] formula works, because you are assigning scores to people, the older, established plans are better at doing this than the smaller, newer plans,” Haislmaier said. “There are indications we’ve seen that that argument may have some validity.”

Notable Exceptions

There have been notable exceptions to the performance of the Blues, which have been described as the backbone of the ACA marketplaces. For example, Blue Cross and Blue Shield of Minnesota recently announced a pullout of all but one small plan from the state’s ACA marketplace after losing $500 million over three years, according to published reports.

The Minnesota insurer’s departure followed last year’s exit by the New Mexico Blue Cross plan after it lost money and state regulators rejected a proposed 51.6 percent premium increase. 

The BCBS plans are among those suing the federal government over risk corridor payments that are less than promised because the Obama administration decided the program needed to be revenue neutral.

The challenges for all ACA plans grew a little sharper with the recent announcement that the marketplaces lost 13 percent, or 1.6 million, of their enrollees during the first three months of the year. Insufficient enrollment by healthy beneficiaries has been blamed for steep losses and steep premium increases. Many BCBS plans are proposing big premium hikes for 2017.

Haislmaier said plans will respond to cost pressures with further premium increases or by leaving the market because they cannot continue to absorb steep losses.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C. office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Wednesday, July 06, 2016