Kentucky’s Affordable Care Act customers will face higher insurance premiums because of a decision by the federal government to discontinue a crucial revenue sharing mechanism among insurers, a local insurance expert told Insider.
Insurers only recently had filed modest rate request increases for next year.
Another expert told Insider that the government’s actions, which puts on hold transfers of $10.4 billion dollars for this year, would harm consumers, especially those with pre-existing conditions.
The Centers for Medicare & Medicaid Services said July 7 that a court ruling in New Mexico from February “prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved.”
The risk adjustment program was one of three mechanisms enacted by Congress to stabilize the individual health care market created by the Affordable Care Act.
The program redistributes dollars from insurers whose customers have a lower risk of incurring health care costs to insurers whose customers have a higher risk of incurring health care costs. That mechanism is meant to spread financial risk among insurers, in part to entice more of them to participate in the market.
However, the U.S. District Court for the District in New Mexico on Feb. 28 invalidated the risk adjustment formula CMS was using to redistribute the funds. While a court in Massachusetts said the formula was acceptable, CMS said the contrary rulings prevent the agency from continuing to collect and distribute the dollars until the cases have been resolved.
CMS said it is “seeking a quick resolution to the legal issues raised.”
For the nearly 80,000 Kentuckians who get their health insurance on the federal exchange from Anthem or CareSource, the federal government’s actions will result in higher premiums, said Griffin Meredith, president of Louisville-based Commonwealth Insurance Partners and past president of the Kentucky Association of Health Underwriters.
While insurers in the Kentucky market generally incur lower-than-average costs compared to other markets, they worry that unexpected claims from very sick patients could undermine their ability to generate a profit, Meredith told Insider via email.
Risk adjustment payments helped insurers counterbalance claims from very sick patients, he said. Now that the insurers won’t have that help anymore, they will raise prices.
“The ceding of high risk claimants was a priority by the carriers in the ACA marketplaces before this move, so it only disrupts their ability to budget more,” Meredith said. “It’s fair to say that this is going to affect pricing in Kentucky negatively by both CareSource and Anthem in each of their respective counties.”
The two insurers just last month filed with the Kentucky Department of Insurance their rate requests for next year, with Anthem asking that it be allowed to raise its rates by an average 3.5 percent across its 13 plans, while CareSource proposed a 19.4 percent hike for its 12 plans.
DOI analysts will review the requests and are expected to finalize any rate changes by late August. Open enrollment for the ACA for 2019 will begin Nov. 1.
DOI said via email: “The rates the carriers filed are where we stand now; however, all changes must be final and uploaded by August 22nd. It is possible that the deadline could be pushed back given the changes to the risk adjustment. However, the date of August 22nd stands for now.”
While the rate hike requests are smaller than in prior years, and Anthem even is expanding the number of Kentucky counties in which it will offer plans, the requests were filed before CMS said it won’t collect and distribute risk adjustment dollars.
Now the insurers could amend their filings to request even higher increases. DOI analysts, too, could bump the rates higher because the market dynamics have changed.
CareSource could not be immediately reached to talk about the CMS decision’s impact on its rates for next year. Anthem referred questions from Insider to an industry association, America’s Health Insurance Plans, which said that it was “very discouraged by the new market disruption brought about by the decision to freeze risk adjustment payments.
“This decision will have serious consequences for millions of consumers who get their coverage through small businesses or buy coverage on their own,” AHIP said in a news release. “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. And costs for taxpayers will rise as the federal government spends more on premium subsidies.”
Katherine Hempstead, of the Robert Wood Johnson Foundation, a philanthropy dedicated to health, agreed, telling Insider via email that the loss of risk adjustment dollars would harm consumers, especially those with pre-existing conditions.
Hempstead directs the foundation’s work on health insurance coverage and serves as senior adviser to the executive vice president.
Given that insurers will no longer receive additional dollars if they take on riskier, more costly patients, such as those with pre-existing conditions, Hempstead said that the insurance companies “would try to cherry-pick their enrollees” to avoid the sickest patients.
And, she said, insurers who are seeing lots of customers with high health care costs may, without further risk adjustment dollars, decide to pull back their participation, leaving consumers with fewer options — or none at all.
“The outlook of carriers who are currently owed money will depend on how deep their pockets are and what their expectations are about the future,” she said “But since a competitive individual market will not be viable without risk adjustment, a failure to resolve this will be bad for all carriers.”
An official with the National Association of Health Underwriters said that the court ruling in New Mexico has put the administration of President Donald Trump in a tough spot.
John C. Greene, vice president of congressional affairs for NAHU, said via email that the administration’s actions were necessary because of the court decision.
The administration is now considering making changes to the risk adjustment formula, he said, but that could be a risky move.
The administration “doesn’t want carriers to suddenly tank, depart or increase premiums yet again just before the election,” Greene said.