Hospital advocates outline changes needed to prevent provider-sponsored plans from going into a “death spiral.”


Aug. 26—The nation’s largest hospital advocacy organization joined other groups this week in urging “swift action to stabilize” the government-run health insurance marketplaces.

In comments to the U.S. Department of Health and Human Services (HHS), the American Hospital Association (AHA) wrote that it was “increasingly concerned about the stability of the marketplaces” following recent high-profile withdrawals of most or all of the plans sold by some of the nation’s largest insurers.

“To date, many insurers have experienced significant losses on their marketplace business,” wrote Rick Pollack, president and CEO of AHA. “These losses are largely the result of inaccurate assumptions about the needs of the newly enrolled in the first years of the marketplaces. However, despite evidence demonstrating the sicker risk pool, state regulators have been reluctant to allow insurers to increase rates.”

Insurers in the marketplaces created by the Affordable Care Act (ACA) have repeatedly blamed steep losses and sicker-than-expected enrollees for their departures. The withdrawals come despite proposed significant rate increases across the country.

The average premium hike requested for 2017 across all 50 states and the District of Columbia was 23.3 percent, according to tabulations by ACAsignups.net, which supports the law.

Provider-Sponsored Plans

The AHA letter noted that more than 100 hospitals and health systems sponsor health plans, and the prevalence of those plans in the ACA marketplaces has been growing. For instance, one-quarter of the more than 90 new health plans added to the ACA marketplaces in 2015 were provider-sponsored plans (PSPs), according to one analysis.

However, most such plans have struggled to achieve profitability in the individual market, according to a McKinsey report. Overall, provider plans had a post-tax operating-margin loss of 10.5 percent in 2014 after factoring in the ACA’s three backstop programs (reinsurance, risk corridors, and risk adjustment—known as the 3Rs). Only 29 percent of such plans in the individual market had positive margins.

“Provider-sponsored plans, in considering their market conditions, are carefully weighing their participation in the exchanges,” Dennis Bolin, chief marketing officer for the Health Plan Alliance (HPA), said in an interview. Most of the HPA’s 47 members are provider-sponsored HMOs.

Such plans have taken large financial hits under the ACA’s risk adjustment program, which pays plans with especially high-risk enrollees using funds taken from other plans.

The losses have led at least two PSPs to leave the ACA marketplaces, including Baylor Scott and White Health, which announced its departure last week.

Similar financial concerns were raised by other PSPs.

“They are completely committed to covering as many people in their community as they possibly can, but the simple math on the exchange population has been very difficult,” Ceci Connolly, president and CEO of the Alliance of Community Health Plans, which represents not-for-profit plans, said in an interview.

Some of the smaller PSPs are still owed millions of dollars under the ACA’s risk corridor program.

PSPs launched by integrated delivery systems view their ACA marketplace losses through the prism of the financial relief provided by the uncompensated-care reductions that stem from the ACA’s coverage expansions, Connolly said.

Dudley Morris a senior advisor for BDC Advisors who has studied the ACA’s failing CO-OP plans, said many PSPs have challenges that are similar to the CO-OPs, including smaller size and less experience running insurance plans.

“Anybody that doesn’t have a good data history, a strong risk-management infrastructure, and adequate capital is going to have a lot of problems in this market,” Morris said in an interview.

Good News

Despite the financial challenges, Connolly said not-for-profit PSPs are not reconsidering their ACA marketplace participation.

Among good news for PSPs is that they have become more price-competitive. Provider plans were price leaders in 26 percent of the counties in which they were sold 2016, up from 15 percent in 2014, according to McKinsey.

The PSPs that have improved their performance in the marketplaces include the SelectHealth plan offered by Intermountain Healthcare, according to Connolly. That PSP has used high retention rates to improve its knowledge of exchange plan enrollees over the last three years and, in turn, to lower its medical costs through improved care coordination, improved delivery, and use of electronic health records.

“Being able to hang in and really focus on who those patients are and what their issues are has started to pay some dividends for them,” Connolly said.

Connolly acknowledged that the Intermountain approach requires a lot of resources and that among her members, integrated delivery systems are able to better perform in the marketplaces.

Actuaries for those PSPs “had to learn some lessons about pricing and product design” after the plans were surprised that the enrollees resembled Medicaid beneficiaries more than traditional commercial plan subscribers.

“Churn has become a really big issue, and where you see it is in the places that did not expand Medicaid,” Connolly said.

The concern over Medicaid-related impacts also was underscored by an HHS analysis this week that concluded that states’ expansion of Medicaid eligibility lowered marketplace plan premiums by an average of 7 percent.

Fixes Needed

Among marketplace changes urged by AHA was for the Obama administration to further tighten special enrollment periods (SEPs). Enrollee abuse of SEPs was blamed by several insurers for steep losses. For instance, according to AHA, one PSP had an average medical loss ratio of 77 percent for plans sold during open enrollment and 114 percent for plans sold during SEPs.

Connolly urged the administration to allow marketplace enrollment by people with incomes of less than 100 percent of the federal poverty level as a way to broaden risk pools that have struggled to attract young and healthy enrollees. Additionally, she said, the next president needs to push Congress to fund permanent continuation of the 3Rs, two of which (reinsurance and risk corridors) expire this year.

“If they don’t fix the 3Rs and do the things that are recommended in the AHA’s letter, then the provider plans will be in a death spiral,” Moore said

Additionally, HPA hopes HHS uses its existing authority to change the risk adjustment data-reporting time frames to provide that information before insurers have to submit their rate requests for the upcoming year.


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

Publication Date: Friday, August 26, 2016