High Costs, Little Return are Hurting Health Insurers under ACA

June 12, 2017 - High cost beneficiaries, risk adjustment methodologies, and insufficient capital are the top three issues facing health insurers today, according to MinuteMan CEO Tom Policelli. 

As the national debate over the future of the ACA and potential repeal-and-replace efforts continues, payers and patients are facing increasing premiums, larger deductibles and widespread instability in the health insurance marketplace.

“As we step back the individual and the small group, the fully insured market place is in very bad shape right now across the country. The current trend line status quo is bad,” contends Policelli.

MinuteMan is a Massachusetts-based HMO which participates in the ACA individual and small-business marketplace exchanges.

“A lot of what we’re hearing right now out of Washington does not get at enough of the fundamental issues why things are so bad and fix it,” he said to HealthPayerIntelligence.com. “Some of the things might make things worse; some might make them a little bit better here and there. Overall, we are not addressing the core economic problems.”

READ MORE: Payer Groups Urge Congress to Keep ACA Cost Sharing Reductions

High cost beneficiaries

The first of Policelli’s pain points for payers comes from the health insurance marketplace’s exposure to a large proportion of high cost beneficiaries.  

“There were some high cost claimants, very sick people who went into the exchanges,” said Policelli.  “For political reasons, mostly, the door was left open so people could come in and enroll almost whenever they wanted. It’s almost like people could wait and buy homeowner’s insurance once their house was on fire.”

Recent CMS rule changes have attempted to address the issue by requiring more eligibility documentation for special enrollment periods as well as shortening the window for open enrollment. 

HHS has also stepped in by increasing flexibility for insurers to create other variations of health plans, which are currently outside of ACA guidelines, as well as allowing states to determine “adequate” levels of available health care.

READ MORE: Payers Leaving Affordable Care Act Insurance Exchanges in 2017

The new rule will shrink the enrollment period from November 1st to December 15th of 2017, instead of closing enrollment on January 31, 2018.  This is a move that CMS claims will keep the marketplace more in line with Medicare and private carriers.

“I think those are steps that are in the right direction and will likely help, but alone they’re not enough,” said Policelli.  “Alone it takes you from drowning in 12 feet of water, down to drowning in 10 feet of water. You’re still drowning but you’re heading in the right direction.”

“A lot of the rules changes that are going through on special enrollments, those are good and will help mitigate some of that problem.”  

Risk adjustment

For Policelli, the second major issue facing payers is the ACA mandated risk adjustment formula that the CEO sees as penalizing low-cost health plan insurers such as MinuteMan.

READ MORE: Payer Concentration Challenges Health Insurance Exchanges

“If you’re low cost, you grow quickly,” said Policelli. “You could be lower cost because you’ve got a focused network, because you work well with providers and have a better, more efficient model. It could be you’re selling bronze plans and not gold plans. It doesn’t matter why you’re more affordable. If you’re more affordable, you get penalized.”

For MinuteMan, being “penalized”, refers to the risk adjustment requirement that they pay out millions of dollars to stabilize other insurance carriers in the healthcare marketplace.

“Nearly 24 percent of the $16.6 million MinuteMan has been ordered to pay to other Massachusetts and New Hampshire carriers under the recent Risk Adjustment assessment is due to the company’s premiums being lower than the statewide average premium in each state,” the company said in a 2016 statement.

In July 2016, Minuteman filed a lawsuit in federal district court against HHS and CMS, claiming that the federal risk adjustment program had illegally cost the insurer and its members millions of dollars.  The lawsuit is still pending.

“In the individual and small group businesses markets under the ACA, risk adjustment has put in massive volatility and penalizes any plan that is lower cost and grows quickly,” explained Policelli.

“That’s sets up a really unfortunate dynamic because it forces prices to go up.  Prices go up; participation goes down.”

In contrast to Policelli’s frustrations, however, a study published in Health Affairs determined risk adjustment to have improved financial outcomes for some payers with higher risk enrollees.

The study found that before the ACA, 30 percent of payers with the highest claims lost $90-$397 per enrollee per month.  That number was moved to a positive revenue flow of $49 per month after the first two years of ACA risk adjustments.

“Because insurers can no longer vary their offers of coverage based on applicant's’ health status, the ACA established a risk adjustment program to equalize health-related cost differences across plans,” the study explained. “The ACA also established a temporary reinsurance program to subsidize high-cost claims.

To combat what they see as unfair restrictions with the risk adjustment formula, in 2016 MinuteMan Health was a founding member of CHOICES.  This multi-state coalition of payers has focused on reform of the 3R’s (reinsurance, risk adjustment, and risk corridors).   

The organization cites the 3R’s as the primary destructive force in the post-ACA insurance marketplace: driving up premiums for consumers and small businesses, reducing competition, preventing market innovation, and slowing the move to more efficient, risk-bearing provider networks.

CHOICES actively advocates for federal and state governments to enact changes to their risk adjustment programs and regulations. 

“At this point in the cycle, we look at the difference between risk adjustments being fixed or not, and if risk adjustment is left the way it is, we can see an average premium increase of 15 percent or higher. That’s enormous. That’s tens of billions of dollars,” explained Policelli.

“We want to create incentives for affordability, not incentives for price increases, and that’s what we have right now.”

A need for outside capital

To stabilize the insurance marketplace, Policelli sees a need for outside capital. But how that outside capital will be acquired remains unclear.

“I think we’ve proven that the federal government alone can’t possibly pay for all this. It’s got to be private money,” said Policelli. 

To further that goal, MinuteMan is currently in a lawsuit with federal agencies seeking to collect unpaid risk corridor payments.  That case is also pending.

“Private money comes in two flavors. One is people voluntarily paying premiums to buy a product they think has value. Right now, they aren’t doing that because it costs too much. So, you could lower prices.”

The second method of infusing capital into the health insurer industry is by payers contributing their own money to reinvest and stabilize the marketplace.

With the future of ACA regulations and funding in flux, payers are attempting to do a balancing act across the national health insurance exchanges. 

There have been many insurers who have left, but there have also been many payers who have seen improvements in profit margins and stayed or even expanded into new markets. 

Policelli ultimately sees the future health of the ACA marketplaces as a simple matter of economic viability for potential members.   

“What we see right now is under the ACA, only half of the people who are supposed to be covered in the individual/small group markets are covered. They just didn’t come in. The reason why is because this stuff costs too much.”