Trump administration freezes billions of dollars in payments to Obamacare insurers
Affordable Care Act insurers are facing a fresh round of uncertainty that could drive up premiums or push companies to stop offering coverage, after the Trump administration’s latest move to cut off subsidies that help stabilize insurance markets.
The U.S. Centers for Medicare and Medicaid Services said this last weekend that a months-old federal court ruling would force it to suspend what are known as risk-adjustment payments, worth about $10.4 billion for 2017. The payments are part of a program in the Affordable Care Act to help balance the insurance markets when some insurers inevitably get stuck with sicker, more costly patients.
The administration said it’s appealing the ruling, which most immediately affects payments for 2017 that were to be made this year.
“Billions of dollars in risk-adjustment payments and collections are now on hold,” CMS Administrator Seema Verma said in a statement over the weekend. “CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets.”
The program doesn’t cost the federal government money. Instead, it moves funds around among insurers to make sure that even people with preexisting conditions or who are at higher risk of getting sick can get coverage.
The move comes just as health insurers were deciding which Affordable Care Act markets to participate in for next year and going about the complex process of setting the prices they’ll charge. Despite the Trump administration’s prior attempts to dismantle the law or undermine it, some insurers that have stuck with the program have turned profits, and there have been early signs that some health plans would expand their coverage footprints for next year.
The effect of the cutoff will be complex. In the short term, it will probably favor health insurers that have drawn healthier, less-costly customers. Under the risk-adjustment program, those insurers make payments into a pool that is redistributed to plans with sicker, more costly patients. As a result, some plans that had already been doing better financially will benefit from not having to make the payments.
Among those are Molina Healthcare Inc. in Long Beach and Centene Corp., which typically pay into the fund rather than receive money from it. Those two firms each owe other insurers about $1 billion, according to regulatory filings. Now, they could end up with an unexpected hoard of cash on hand.
For example, Molina was expected to pay almost $800 million into risk-redistribution funds for 2017 in California, Florida and Texas. Centene, which has rapidly increased its marketplace presence in recent years, is slated to pay nearly $300 million for risk adjustment in Florida, and about $117 million in Texas.
But in the long run, Centene, which generates a significant amount of its revenue from the ACA marketplace, might find itself in jeopardy if the move ultimately destabilizes the markets. Ana Gupte, an analyst at Leerink Partners, estimates the company’s potential medium-term exposure at 15% to 20% of its earnings, the greatest downside risk out of all publicly traded Obamacare insurers.
Molina’s shares closed up $3.20, or 3.2%, to $103.68 on Monday. Centene shares inched up 14 cents, or 0.1%, to $129.30.
Likewise, plans with more costly groups of customers will suffer. Without the steadying mechanism, that could destabilize the markets in the long term. It will also force insurers to raise premiums for next year, to cover the risk that the stabilizing payments won’t get made, said one lobbying group for health insurers.
“This action will significantly increase 2019 premiums for millions of individuals and small business owners and could result in far fewer health plan choices,” Blue Cross Blue Shield Assn. Chief Executive Scott Serota said in a statement. The Centers for Medicare and Medicaid Services “should take immediate action to reinstate these payment transfers to ensure the market works as intended.”
Some newer insurers have criticized the risk-adjustment program, saying it benefits more established insurers that have the resources to identify more of their customers’ ailments. The lawsuit that led the Medicare agency to halt payments resulted from a challenge by an insurer in New Mexico that said the program’s rules were arbitrary and unfair.
Insurers that face the most risk of harm are probably smaller companies with lots of sick customers. Those companies would tend to be owed money and might not have the financial resources to wait for a resolution, or to make up for a shortfall.
“This decision will have serious consequences for millions of consumers,” the trade group America’s Health Insurance Plans said in a statement. “It will create more market uncertainty and increase premiums for many health plans — putting a heavier burden on small businesses and consumers, and reducing coverage options.”
But some big companies could lose too. Anthem Inc. received almost $500 million in risk-adjustment payments for the 2016 plan year, according to Evercore ISI analyst Michael Newshel. For 2017, the company was set to receive about $215 million in California alone. UnitedHealth Group Inc., too, is supposed to get $217 million in payments just in New York.
Jefferies Group analyst David Windley and BMO Capital Markets analyst Matt Borsch both predict negative short-time effects for Anthem, though Borsch said the company is unlikely to see any material effect on its earnings, given that less than 5% of its revenue comes from marketplace plans.
The Centers for Medicare and Medicaid Services said it will provide more information soon on how insurers should handle other issues tied to risk-adjustment payments. The agency typically would give insurers information about their 2017 payments in June 2018, and then move the funds in the fall.
The Trump administration could resolve the situation by issuing a new rule for the risk-adjustment program that addresses issues raised by the judge’s ruling in the New Mexico case, said Katie Keith, who consults on healthcare issues and blogs for the journal Health Affairs.
The legal situation won’t affect the risk-adjustment program in 2019 because the administration already issued a new regulation for next year that accounts for the issues in the New Mexico case, Keith wrote.
New York Gov. Andrew Cuomo said Monday that he directed the state’s Department of Financial Services to review the effect of the decision, and, if needed, prepare to implement and expand a risk-readjustment program for New York if the federal program isn’t reinstated.
UPDATES:
4:40 p.m., July 9: This article was updated more details on the effect of the subsidy cut-off on Molina Healthcare, Centene Corp., Anthem Inc. and UnitedHealth Group Inc.
This article was originally published on at 2:10 p.m., July 8
