Response to DOJ’s Move To Block Mergers

The Justice Dept. is suing to block two proposed mergers between major health insurance companies, saying the deals violate antitrust laws. The lawsuits argue that a $37 billion merger between Humana and Aetna would lead to higher health-insurance prices, reduced benefits, less innovation, and worse service for over a million Americans. The DOJ also says that the $54 billion acquisition of Cigna by Anthem would be the largest merger in the history of the health insurance industry. California insurance commissioner Dave Jones said, “I urged the DOJ to prevent these health insurance mergers, which would result in a highly concentrated, less competitive health insurance market doing irreparable harm to consumers and businesses. During the public hearings I convened, I questioned executives from Anthem, Cigna, Aetna and Humana. None of the companies were able to substantiate their claims of savings associated with the mergers. Not one company executive was willing to commit to pass along alleged cost savings to consumers through lower premiums. Bigger is not better when it comes to health insurance mergers. History has shown that health insurance mergers result in higher prices, fewer choices, and lower quality of care.”

Dr. Merrill Matthews of The Institute for Policy Innovation said, “The Obama administration is attempting to block the Aetna-Humana and Anthem-Cigna mergers because it wants more competition, but if compounding financial losses force these companies to drop out of the exchanges, there won’t be any competition. Two larger health insurers are better than none. Health insurance company mergers started shortly after the ACA passed in order to survive the new environment of high costs and government regulations…For example, Arizona’s Maricopa County was once praised as a center of robust competition with eight insurance companies competing in its ACA exchange. But in just a few years, that number will drop to only three insurers, two of which are Aetna and Cigna. If Washington stifles these same companies’ attempts to stay afloat in the exchanges, Maricopa County and other areas could see only a single insurer available in its marketplace—if any at all…If the Department of Justice’s stonewalling is successful, those insurers will likely join many others and pull out of the Obamacare exchanges, leaving even less competition and higher prices. And that will force the administration to devise even more excuses for why health care costs are exploding.”

Insurer Obamacare Losses Reach Billions Of Dollars After Two Years

Bruce Japsen ,

CONTRIBUTOR

I write about health care and policies from the president’s hometown

Opinions expressed by Forbes Contributors are their own.

After two years offering uninsured Americans subsidized products on public exchanges, health insurance companies have been hard-pressed to find financial success in this segment of the Affordable Care Act with losses reaching billions of dollars for the industry.

UnitedHealth Group UNH +0.77% lost more than $720 million on its public exchange business last year, and United is a small player in this market compared to Anthem ANTM +0.84%, which operates Blue Cross and Blue Shield plans in 14 states, and said money-losing Obamacare plans caused profits to fall 64% in the fourth quarterAetna AET +0.16%, which hopes to finalize its acquisition of Humana HUM -0.29% later this year, said last week individual coverage sold under the health law “remained unprofitable” last year.

The financial performance has come into view in the last two weeks following release of 2015 annual and fourth-quarter earnings.

A demonstrator in support of  the Affordable Care Act holds an “ACA is here to stay” sign outside the Supreme Court after justices ruled 6-3 to save Obamacare tax subsidies on June 25, 2015. Photographer: Andrew Harrer/Bloomberg

Other Blue Cross and Blue Shield plans, some nonprofits and others owned by policyholders, are also reporting hundreds of millions in losses on health plans they sell on public exchanges. For example, Blue Cross and Blue Shield of North Carolina has reported losses of more than $400 million through last year and Health Care Service Corp., which owns five Blue Cross plans including those in Illinois and Texas, lost more than $240 million in 2014 and remained unprofitable in its public exchange business last year. Health Care Service has yet to disclose 2015 financials for its nearly 2 million members in its individual business that includes Obamacare enrollment, a company spokesman said.

For insurers, the problem has largely been a major increase in medical expenses from these new patients, who were previously uninsured. From an actuarial standpoint, the health plans say they didn’t know what they would be getting and therefore needed more healthy people to buy premiums to cover the costs of the sick. So far, medical expenses are getting the upper hand. For example,Anthem’s fourth-quarter “benefit expense ratio” was 87% compared to 84.5% in the year-ago period.

But insurers, for the most part, see 2016 as a potential breakout year as they get a handle on pricing and narrow provider networks to better control costs.

Anthem CEO Joe Swedish, who has complained rivals have underpriced their products to get enrollment in the first two years, looks for the public exchange business to rebound following two years of pricing he’s described as “unsustainable.” Analysts say Anthem might even have stronger offerings following its acquisition of Cigna CI -0.04%, should that close later this year.

Competition Suffers Most If UnitedHealth Exits Obamacare In 2017

by Phil Galewitz of Kaiser Health News
If UnitedHealthcare follows through on its threat to quit the health insurance marketplaces in 2017, more than 1 million consumers would be left with a single health plan option, forecasted an analysis released Monday. A UnitedHealthcare pullout would be felt most in several states, generally in the South and Midwest, where consumers would be left with little choice of plans, the Kaiser Family Foundation said. In most of the 34 states where United operates this year, though, the effect would be modest for premiums and the number of plan options, Kaiser said. Kaiser’s analysis was made public a day before UnitedHealth Group, the insurer’s parent, is expected to announce 2017 plans for the ACA’s marketplaces that provide coverage to individuals who shop for their own health insurance.

Last year, UnitedHealthcare said it was losing hundreds of millions of dollars on the Obamacare plans and would decide its future participation by mid-2016. Health plans need to begin notifying states by May whether they plan to sell in marketplaces next year. More than one in four counties where UnitedHealthcare participates nationally would see a drop from two insurers to one if the company exits and isn’t replaced by a new entrant, and a similar number would go from having three insurers to two, the Kaiser analysis found. In total, 1.8 million enrollees would go from having a choice of three insurers to two, and another 1.1 million would go from having a choice of two insurers to one, the report said.

A UnitedHealth withdrawal would leave marketplace enrollees in Kansas and Oklahoma with only one insurer if another company does not move in, Kaiser said.

Its analysis cited the potential affect in other states if UnitedHealthcare drops out:

  • In Alabama, about two-thirds of enrollees — those living in 60 counties — would go from having a choice of two insurers to a single insurer, and the remaining 33% of enrollees in seven counties would have two insurers to pick from.
  • In Mississippi, 43% of enrollees in 50 counties would drop to just a single insurer and the remaining 57% in 32 counties would still have two.
  • In Arkansas, there would be a drop from four insurers to three insurers in every county if a new insurer did not replace the company.
  • In Georgia, nearly 50,000 marketplace enrollees, or 8% of the total, would be left with a choice of two insurers. Another 20,000 enrollees, or 3%, would have only one insurer if no new entrants replaced UnitedHealthcare.
  • Nationally, UnitedHealthcare’s participation on the exchanges had a relatively small effect on average premiums, based on Kaiser’s analysis of 2016 insurer premiums.

The company was less likely to offer one of the lowest-cost silver plans, where most enrollees sign up. When it did offer a low-cost option, its pricing was often close to its competitors. As a result, the weighted average premium for a benchmark silver-level plan would have been about 1% higher had United not participated in 2016. Federal subsidies in the marketplaces are based on the second-lowest silver premium. Benjamin Wakana, a spokesman for the Centers for Medicare & Medicaid Services, said the government expects insurers to make adjustments in entering and exiting states. The marketplace should be judged by the choices it offers consumers, not the decisions of any one issuer. That data shows that the future of the marketplace remains strong. UnitedHealth Group will release its first-quarter earnings Tuesday morning and CEO Stephen Hemsley is scheduled to discuss the results with analysts and investors at 8:45 a.m. ET. This story was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

Study Shows That Private Exchanges Help Retain Employees

Seventy-two percent of employees using a private exchange say they are more likely to remain with their employer because of their benefit program, according to a new Liazon survey. The survey findings suggest that retention can get a boost from increased engagement and awareness of benefits, including a better understanding of their value in total compensation package. Ashok Subramanian of Liazon said, “The retention case is incredibly strong for private exchanges. The data show us that employees appreciate their benefits more when they are engaged in the process of selection and view the full cost of their plans. As private exchanges become a more popular form of benefit delivery, employers are beginning to recognize the model as a way to communicate the value of the benefits they are offering to their workforce.”

When asked to compare their experience using an exchange to the traditional method of benefit distribution, 83% of employees said they are more engaged in their health care decisions and 77% said they value their benefits more. Further, by increasing transparency into employer contributions and the full cost of benefits, private exchanges help employees better understand and appreciate their benefits as part of their compensation. In fact, 85% of respondents using an exchange, for the first time, said that they are more aware of their company’s contribution to their benefit costs and 81% said they value their company’s contribution more.

Some States Pay Twice the Price for Health Care

Some states pay more than double of what other states pay for health care among the commercially insured, according to a report by the Health Care Cost Institute (HCCI). Some price variation is due to differences in wages or rent, but other variation is due to differences in market dynamics, such as a lack of transparency, market power, or the availability of alternative treatments. Alaska has the highest health care prices, followed by Wisconsin, North Dakota, New Hampshire, and Minnesota. In New Hampshire and Wisconsin, over 20% of health care services are twice the national average price. In Arizona, Florida, Maryland, and Tennessee, more than 90% of health care services are priced lower than the national average.

Prices vary more for some health care services. For example, states have similar prices for acupuncture while prices for cataract removal vary significantly. The greatest price variation is for imaging, radiology, and lab tests. Prices for services also vary widely among cities in the same state. For example, prices for knee replacements vary most in California, with a $27,243 average price difference between Riverside ($30,261) and Sacramento ($57,504). Price variation has a substantial affect on health care spending and patients’ cost sharing

Will Healthcare.gov Get A California Makeover?

by Pauline Bartolone, CALMatters www.Californiahealthline.org.
The federal government — in pending proposed rules for 2017 — has signaled it too wants to have more of a hand in crafting plans. Though there are no plans to go as far as a monthly drug copay cap, healthcare.gov would be forging ahead on a path California already paved, swapping variety for simplicity in plan design. “Not letting [health] plans define what’s right for consumers, but defining it on behalf of consumers … is a better model for the market,” said Peter Lee, executive director of Covered California. “We want to make sure every consumer has good choice but not infinite choice,” said Lee.

Most other states, including those in the federal exchange, haven’t subscribed to that idea so far. They have a clearinghouse model, in which all health insurers and plan designs are accepted as long they comply with the Affordable Care Act. That can mean the same insurer offers multiple plans with slightly different premiums, deductibles, and copays. Even within one metal tier, say silver, the same insurer might offer half a dozen slightly different plans. (Obamacare plans come in four tiers, from bronze, with the most limited benefits, to platinum, with the most.)

Now, the federal government proposes to create standard cost-sharing designs in various metal tiers and make them easily accessible on healthcare.gov. And it’s considering how to improve “value” by being more selective about plans. A simplified marketplace, the feds say, will make it easier to choose high-quality health insurance.

“Many consumers … find the large variety of cost-sharing structures available on the Exchanges difficult to navigate,” the proposed rules say. “We believe that standardized options will provide these consumers the opportunity to make simpler comparisons.”

The proposal signals a big change. “Up until now the federal marketplace has really taken a hands-off approach” in shaping the marketplace, said Sabrina Corlette, research professor at Georgetown University’s Center on Health Insurance Reforms. “The new proposed rule says we actually are going to become more of an active purchaser.’”

Covered California holds insurers to a higher bar than what’s required under the Affordable Care Act. It negotiates premium prices down and requires quality goals to be met. Health plans must participate in health-disparity workgroups, collect information about enrollees’ health status and monitor rates of preventive health services use. In the first two years, California’s exchange rejected multiple health insurance carriers.

Covered California says it’s the only exchange in the country that requires all plans to be standardized (not just some, which the federal government is proposing). All gold tier plans, for instance, have the same costs for lab tests, doctors’ visits and deductibles.

“There was always a suspicion like ‘Oh, is that plan $80 more a month because it covers more?’” said Anthony Wright, of the advocacy group, Health Access. “And it was almost impossible to know. Whereas now people know ‘Okay, these are basically the same plans.’”

Price negotiations with insurers have paid off, according to Covered California. During 2016 plan year negotiations, insurers reduced premiums by 1% to 9%, said Lee. The exchange says this will result in $200 million in savings for premium payers and taxpayers this year.

Covered California average premium increases have been on par with or lower than the increases in other states, according to the private health care consulting firm, Avalere Health. It says this year’s 4% average increase was particularly low in comparison. But national researchers say the downward pressure on premiums may be more indicative of competition than the exchange’s negotiating power.

“It’s unusual to have four big insurers jockeying for market share like we have in many parts of California,” said Larry Levitt, Senior Vice President at the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

Health insurers in California acknowledge there’s more red tape if they sell in the subsidized marketplace there, but surprisingly, they don’t complain. In fact, a California insurance trade group says it sees the exchange as a “partner,” and active purchasing as valuable for establishing ground rules. “So far in California, it has worked,” said Charles Bacchi, president and CEO of the California Association of Health Plans. The rules allowed new plans to get into the individual market, he says, and provided “more security in knowing what the playing field was.” At the same time, Bacchi said, health plans don’t always agree with the exchange’s decisions. “There is give and take,” he said.

Blue Shield of California, which in 2015 had 25% of the exchange’s enrollment, says it’s very happy with its relationship with Covered California. Applying to sell through Covered California creates “different work” than was required before, said Ken Wood, Senior Vice President of Consumer Markets at Blue Shield of California, adding that he applauds its approach. But the business is worth it, he said. Covered California gives insurers access to more than a million consumers, whose monthly premiums are largely subsidized by government. And “the standard benefits is an enormous simplification for consumers,” he said. But one of the two health insurance regulators in California, the state Department of Insurance, said Covered California’s strict guidelines might not benefit consumers. It has created a situation in which the exchange “has fewer carriers than would otherwise be the case,” said Janice Rocco, deputy commissioner of the California Department of Insurance.

More insurers in the marketplace for the first two years would have had an impact on price in the long term, said Rocco. Federal administrators may be trying to adopt active purchasing rules before the new presidential administration takes office, said Corlette, and California’s example may make it more politically feasible. “There’s no question that the feds are closely watching the California experience,” said Corlette, commenting on Covered California’s ability to keep insurers in the marketplace and hold down premiums.

The federal rules also name other active purchasing exchanges as models however, including New York, Massachusetts and other state-based exchanges.

Health insurers on a national level are “strongly” opposed to an active purchaser model for states served by healthcare.gov, including standardized benefits. “It could discourage many from enrolling if they can’t find a policy that works best for them,” said Clare Krusing from America’s Health Insurance Plans. “Where there is competition and choice is where consumers benefit and where health plans benefit,” said Krusing.

Researchers raise other logistical and market concerns. Caroline Pearson, senior vice president of Avalere Health, said the risk of losing insurers under active purchasing is “significant.” “Right now the federal government needs to focus on increasing enrollment and maintaining plan participation,” said Pearson. Streamlining benefits like medical service copays could get tricky when spanning across more than 30 states with different economies, said Corlette.

Not all of Covered California’s actions have been met with applause. Consumer advocates say they’re still concerned about the high deductible in Covered California’s Bronze plans, an amount the exchange chose to raise for 2016 plans. But at the same time, advocates appreciate that policy decisions aren’t being made in the “back room of an insurance company.” “Covered California has put itself apart from other states in that it is willing to be aggressive and do what’s right,” said arthritis patient and advocate Charis Hill. She said she’s glad Covered California reminds insurance companies that they exist to serve patients: “If they’re not doing their job, then somebody’s going to step in.”

Why Private Exchanges Don’t Threaten the ACA

A report by the Robert Wood Johnson Foundation failed to uncover any substantial evidence that private exchanges pose any serious threats to public policy. It is important to note that the Foundation is not a conservative think tank. In fact, it has been bashed in the conservative media for being left wing. The following is a summary of the report. Private exchanges don’t appear to threaten the ACA’s regulatory structure. Private exchanges are not a pathway for employers to drop or radically reduce coverage. They are not being offered as a way to circumvent or exploit other federal or state regulatory standards. Private exchanges, so far, have not degraded employer sponsorship of health benefits, and experts believe this is not likely to happen.
Instead, there is good reason to believe that private exchanges might enhance employers’ willingness to continue offering health benefits.

They don’t pose a threat to the public exchanges. For the most part, they are not in direct competition with the small-employer component of the public exchanges, the Small Business Health Options Program (SHOP). Instead, private exchanges appear to hold real promise for improving choice and competition in the group insurance markets.

Seldom in the history of health care public policy has a major development in health care finance failed to prompt a major regulatory response. The initial growth of health insurance prompted state regulation of covered benefits. The spread of employer-sponsored health insurance yielded ERISA. The managed care revolution sparked a regulatory backlash against restrictive coverage. And the ACA’s creation of public health insurance exchanges carried with it a host of regulatory requirements for qualified health plans that participate in public exchanges.

Private insurance exchanges have not yet achieved the same level of significance, but some analysts predict they will. If so, it would be surprising if private exchanges did not merit some attention from regulators.
Private exchanges appear to be an exceptional case in which regulatory restraint is the wisest course of action. None of the potential concerns that one might conjure for private exchanges appears to have materialized or to be a real threat.  Views were more divided on enacting laws and regulations to facilitate or promote private exchanges. The dominant view is that private exchanges face no substantial regulatory barriers or uncertainties, and thus they are able to succeed in the market if they demonstrate their inherent economic value. Others say that adoption of private exchanges would accelerate if laws were enacted to give employers safe harbor from certain regulatory requirements. The strongest accelerant would be if tax law changed to allow workers to use pre-tax employer contributions to purchase individual insurance.

The promise is sufficiently attractive that lawmakers might consider measures that facilitate changes to ERISA and to the tax treatment of individual insurance. The government has reason to prevent double dipping by using pre-tax dollars to purchase subsidized insurance. The best course of action, at the moment, appears to be simply standing back to monitor how private exchanges develop within existing market conditions and regulatory pathways.

What to Do If You Lose Your Tax Subsidies from the Health Insurance Marketplace

CMS announced a special enrollment for those who lost their tax subsidies. Jim Jalil CEO ofHealthCareForYouNow.com said, “We have seen a large of number of individual losing there tax credit despite sending the required documents needed for their subsidies. We first noticed around May this year when our members completed their taxes for 2014. Most who have changed their income or adjusted the subsidies notice that the subsidies were removed despite sending all the required documentation.”

Jalil offers the following advice: In order to regain the lost tax credit you will need your 2015 application ID number from the Marketplace as well as your updated projected income for 2015 to reissue a tax credit for the remainder of the 2015 calendar year. You’re likely entitled to a grace period. Most people who purchased insurance plans on state and federal marketplaces qualified for tax credits, making their insurance more affordable. If you got a premium tax credit to reduce your monthly premiums, you’re in luck: The Affordable Care Act instituted a 90-day grace period for these subsidized plans.

For the first 30 days after your missed payment, your insurance company must pay your claims. For days 31 to 90 of the grace period, they don’t have to pay the claims but will hold them rather than flat-out denying them. During the entire 90-day grace period, you can get caught up and have your insurance pick back up once you are current on your premiums. Any claims held during this time will be processed once you’re caught up. If you’re unable to get caught up during this time, your policy will be canceled and any claims submitted after the initial 30 days will be your responsibility entirely.

Allowing Mid-Sized Employers to Delay a Move to the Small-Group Insurance Market

A provision in the Affordable Care Act that could have a strong impact on small and mid-sized employers, reports the Commonwealth Fund. Historically, states have defined their small-group markets as groups of two to 50 employees. But, beginning January 1, the Affordable Care Act expands the definition of small employer to have two to 100 employees. Experts say this change could drive up premiums for some mid-sized employers with 51 to 100 employees. They will become newly subject to several small-group market reforms, such as not charging people more for preexisting conditions and covering a minimum set of essential health benefits. Some policymakers have called for the delay or repeal of this provision.

While it is unlikely that the Obama Administration will unilaterally delay this requirement, there is a transitional policy for mid-sized employers. States can decide whether to allow mid-sized groups to remain part of the large-group market for up to two more years. Not all states will permit transitional relief for mid-sized employers including California, Colorado, Connecticut, Maryland, Minnesota, Nevada, New York, Vermont, and Washington.

Many states are concerned that expanding the small-group market could lead to significant disruption, including premium increases for employers with young or healthy groups. This could give some employers an incentive to self-insure or even drop employee coverage. If too many young, healthy groups leave the market, adverse selection could cause premiums to increase for the employers that remain.

Top Health Plans See Better Performance

Most of the top health plans experienced enrollment gains coupled with favorable financial results for 2014, according to a report by Mark Farrah Associates (MFA). Medical membership for the leading U.S. health insurance plans increased nearly 5.7% from 139.1 million at year end of 2013 to 144.7 million at the end of 2014.

MFA assessed enrollment changes and profitability for Aetna, Cigna, Health Care Service Corporation (HCSC), Humana, Kaiser Permanente, UnitedHealth Group and Anthem.  Collectively, these companies insure or administer health coverage for approximately 54% of the insured population in the United States.

Membership changes came primarily from mergers and acquisitions, but leaders also reported organic growth in select segments with many top plans continuing to reflect increases in both risk and ASO enrollment.  As of December 2014, Anthem enrolled 37.5 million medical members, an increase of nearly 1.9% year-over-year, positioning the company as the leading health plan based on total membership.  UnitedHealth was the only leader of the seven health plans that saw a decline in enrollment with 36.8 million medical members as of December 31, 2014, compared to 37.2 million in 2013.  Aetna, the third largest health plan in the nation, reported total membership of 23.1 million at year-end 2014, a 1.3% increase since year-end 2013.  Humana saw the largest increase in risk-based enrollment with a 27.1% increase but experienced a loss in ASO membership.

Profit margins for the leading companies were generally favorable for year-to-date 2014 performance.  Kaiser reported a net income of $3.1 billion on revenues of $57.6 billion for 2014 with a profit margin of 5.34%.  UnitedHealth’s profit margin declined from 6.3% in 2013 to 5.8% in 2014.  The company partly attributed the reduction in operating earnings to ACA fees and Medicare Advantage funding reductions.  Aetna reported a 2014 profit margin of 4%, down from 4.3% the prior year and Anthem’s margin was 3.5%, which was on par with 2013.

Last Updated 10/14/2020

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