$18M Claimant Case Challenges Affordable Care Act Payers

June 06, 2017 - In April of 2017, Wellmark Blue Cross Blue Shield, which operates in Iowa and South Dakota, announced it would exit the 2018 health insurance exchanges.  The payer cited higher than expected claims costs, including Member X, who had claims of over $18 million in one year alone.

The insurer’s decision to exit the Affordable Care Act marketplace for 2018 came on the heels of three years of losses totaling $90 million, and a steady increase in premiums for members.

In an analysis by Magnum Actuarial Group, payer Wellmark was confronted with the reality of how much impact a high-cost claimant made to its relatively small Iowa and South Dakota member pools. 

It began in July 2015, when an individual, Member X, joined the Wellmark member pool and began to rack up an average of $3 million monthly in claims.

The member submitted $18.2 million of allowable claims during the last six months of 2015 and $9.1 Million during the first four months of 2016.

“In our nearly 80 years of combined experience Magnum’s two senior partners have never seen a claimant incur recurring costs this large,” stated Magnum in their report.

Bound by ACA coverage regulations, the insurer could not discriminate based on pre-existing conditions, or set an annual or lifetime limit on coverage payments for essential health benefits. 

There are ACA safeguards for high-cost claimants, such as risk sharing and interim reinsurance programs, but the annual reimbursement cap of $250,000 proved to be largely ineffective for defraying cost impacts for the payer.  

Although data for Wellmark’s Iowa health insurance exchange indicated a larger than average high-cost member base overall, Member X did have a disproportional impact on the entire pool. 

The ACA Wellmark pool expense increased 10 percent due to Member X alone. 

Member X was also determined to have a 10 percent impact on premium rate requests.  Magnum data concluded that 2017, claims by Member X alone would force a predicted rate increase of 32.7 to 42.6 percent. 

That additional increase would break down to $500 in claim costs for each member of the 2017 exchange.

HIPAA restrictions have prevented the release of any specific data on Member X, but it has been indicated that the individual has a rare genetic condition.  

The case looks to be an extreme example of accelerating healthcare costs and the impact it has on payers, one that could lead to unchartered outcomes in other exchanges across the nation.

“No matter how sick, one member will have an immaterial impact on the risk score that determines the amount of the risk adjustment transfer, even if his or her claims have a material impact on financial results,” determined Magnum.  

“Without stronger, more flexible risk management mechanisms, unlimited lifetime benefits could jeopardize the survival of all but the largest health insurers and, as this filing demonstrates, compromise rate stability for members of companies even as large as Wellmark.”