Health law ensures insurers won't lose

Republicans call safeguards an improper bailout

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When asked a few weeks back if Highmark's individual health plans -- among the cheapest in the country -- were underpriced, company CEO William Winkenwerder Jr. said they weren't.

"We do not intend to lose money," Dr. Winkenwerder said during a February media briefing. "We believe the products have been appropriately priced, [and] that we'll be able to manage their costs."

But even if the plans do lose money, Highmark -- and other insurers -- will be protected when it comes to products being sold through federal and state-operated health care marketplaces.

That's because of various insurance policies -- Republicans have called them bailouts -- taken out on behalf of the insurers, a series of provisions built into the 2010 Affordable Care Act meant to take some of the risk out of selling policies in an unknown market and help prevent major losses in the first few years as the market is established.

Safeguarding against losses, in turn, should stabilize premiums sold through healthcare.gov and various state-operated exchanges.

The safeguard provisions include a state-level reinsurance program that runs through 2016 and provides money to insurers that incur higher-than-expected claims cost; an ongoing risk adjustment program that shifts money and profits from lower-risk plans to those that end up taking on higher risk and sicker populations; and federal "risk corridors," which kick in after reinsurance and risk adjustment have done their part.

The risk-adjustment program is meant to be revenue-neutral for the government, while the reinsurance program -- which collects premiums from all health plans then makes payouts to plans operating on the individual market -- should actually be a revenue generator for the federal government, directing $5 billion to the U.S. Treasury.

But the risk "corridors" -- so named because different columns of gains or losses carry with them different rates of reimbursement from the federal government -- have been the most controversial, because they have the potential to be a revenue drain on the federal government if enough plans being offered through the ACA miss their target and lose money.

That's why U.S. Sen. Marco Rubio, R-Fla., introduced legislation in November to repeal the risk corridors. Called the "Obamacare Bailout Prevention Act," the law, according to a spokesman for the senator, would "ensure the Obama administration doesn't have unaccountable blank-check-writing authority to bail out insurance companies at the expense of taxpayers."

In a recent report, the Congressional Budget Office suggests Republicans' concerns are misplaced. The risk corridor program -- which not only doles out cash to money-losing plans but also takes it in from overly profitable ones -- projects an $8 billion surplus over its lifetime, the CBO said in its February report.

The program, like the state-level reinsurance plans, is scheduled to expire after three years -- at the end of 2016. There already has been talk of extending them because they are the last backstop preventing health plans that sell on the federal and state marketplaces from losing money.

"The problem is that insurers don't have data on currently uninsured" people, said Hans Leida, a principal and actuary with Seattle-based Milliman, an international actuarial firm. Without health data on that population -- and absent the ability to turn down sick people and set plan prices as freely as they used to -- insurers are wading into unknown territory.

And if not enough healthy young people sign up for insurance -- right now, about 27 percent of the 4.24 million enrolled in ACA-qualified health plans are under 35 -- the risk pool of the new customer base could be tilted toward older patients who are more expensive to insure and care for. Obama administration officials say they want one-third of overall sign-ups to be under 35, and with just two more weeks left to sign up for insurance -- or risk a financial penalty -- it seems as if they'll miss the mark.

That's why the "three Rs" -- reinsurance, risk adjustment, risk corridors -- are in place, and it's the reason the corridor program is designed to "protect against inaccurate rate-setting," according to the U.S. Centers for Medicare and Medicaid Services.

If an insurer's claims costs are more than 102 percent of its "target amount," the insurer will get some money back. The bigger the miss on pricing, the amount of money they stand to get back increases.

But what if those rates are set incorrectly by way of a hyper-competitive insurance market, "busying business" in order to grab market share?

Highmark's individual plans start at $99 a month for catastrophic plan premiums, $114 for a bronze-level plan, and $128 for the cheapest silver plan. Those are some of the cheapest starting rates in the country (before federal health insurance subsidies are calculated into the mix).

"There isn't anything in current law or regulation that prevents" insurers from taking advantage of the backstops, Mr. Leida said. "It would be hard to develop such a regulation. How could you prove intent?"

There are some tangential safeguards in place. One, on the federal level, is meant to prevent insurers from flooding a market with dozens of similar products, taking up all of the virtual "shelf space" on the online shopping exchanges.

Also at the federal level, CMS plans to "conduct an outlier test to identify relatively high and low rates compared to other [qualified health plan] rates" in the same geographic areas. Being flagged for an unusually low premium doesn't mean the plan can't be sold, though -- it just means the state Department of Insurance has to follow up and do its own additional vetting of the plan.

Mr. Leida noted that it will take a while to know whether the products were priced appropriately. Once the 2014 plan year ends, it will take more than half a year for the various "Rs" to shift money around. But by then -- the summer of 2015 -- premium prices for the 2016 plan year will have already been submitted to the state and federal governments.

So it won't be until the 2017 plan year that the risk and cost of the new customer pool are more accurately reflected in plan pricing, Mr. Leida said.

"It takes a long time for data to mature in health insurance," he said..


Bill Toland: btoland@post-gazette.com or 412-263-2625

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