Does Aetna Exit Signal Deeper ACA Problems?

open_enrollment

San Diego Union-Tribune
The insurance giant Aetna will will stop offering Obamacare health plans in 11 of 15 states, citing $200 million in losses this year and more than $400 million since 2014. The announcement, made Monday night, was the latest blow to the Affordable Care Act, which had already suffered the departure of top-five insurers Humana and UnitedHealthcare and has seen double-digit premium increases for many of the carriers that will continue to sell through health exchanges such as Covered California next year. In general, carriers have said too many sick patients are the main reason they’re dropping out of exchanges or raising rates. With not enough young and healthy enrollees to balance out the claims ledgers, the three companies that are pulling out or down scaling said they have lost hundreds of millions of dollars.

So do these developments mark the beginning of the doomsday scenario for Obamacare? Before the law’s main insurance provision took effect in 2014, many experts predicted that guaranteeing coverage to all consumers regardless of their pre-existing medical conditions would eventually create “sick” insurance risk pools that could not cover their costs without large premium increases each year.

The experts disagree on whether the latest pullbacks and significant pricing hikes, floating in a sea of election-year politics, signal that the nation’s health insurance exchanges have reached a terrible tipping point or are simply seeking a new state of equilibrium.

Gary Claxton, director of the nonprofit research group Health Care Marketplace Project at Kaiser Family Foundation, takes a middle position. He said the currently available facts can be interpreted either way, and that means Obamacare’s upcoming open-enrollment period — its fourth annual — is critical. It will all come down to whether the number of enrollees in Obamacare plans continues to grow, he said. “We won’t know until the next open enrollment, are we still moving forward or are we stalled or moving backward?” Claxton said. ” If the market grows, then I think many insurers will find a way to be part of it… The next couple of months are a moment of truth.”

Just how bad the problem is depends on who you ask. UnitedHealthcare said in April that it expects to lose $650 million this year because the cost of its Obamacare policies has exceeded revenue generated from premiums. Then late Monday brought Aetna’s announcement of its deficits. While its book of business includes insurance plans sold outside of Obamacare exchanges as well, all plans on the individual market (not employer-based policies) have been affected by the Affordable Care Act’s edict to take all comers regardless of their health status.

This picture of unprofitability from some of the nation’s largest insurers contrasts with an announcement last week from the U.S. Centers for Medicare and Medicaid Services that said per-member claims were flat from 2014 to 2015 for exchange enrollees, compared with a 3 percent increase for the broader health insurance market.

The federal government gets its data from the Affordable Care Act’s reinsurance and risk adjustment programs, which have collected broad information on all claims in order to reimburse programs that experienced higher-than-average patient expenses. The reinsurance program will go away next year and many organizations, including Covered California, have said insurers are announcing double-digit premium increases for next year to compensate for this change. Neither the insurance companies nor CMS has released full data sets on Obamacare claims, making it difficult for analysts to reconcile these seemingly contrasting pictures about the financial state of health exchanges.

Brian Blase, a senior research fellow at the Mercatus Center, a conservative think tank located at George Mason University in Virginia, said he believes insurers’ reported losses and their decisions to largely leave the exchanges have been brewing since 2014, the first year exchange policies took full effect. A recent analysis of 174 health plans operating in 2014 showed that premiums would have had to be 24 percent higher than they were in 2014 to cover costs, but that the disparity was erased by the government’s reinsurance program, according to the Mercatus study.

When asked why the recent CMS study indicates a very different scenario, Blase was blunt. “I think they did some gymnastics on how they counted or discounted claims. It is inconsistent with everything else I’ve seen and, frankly, I think that their analysis is inaccurate,” Blase said. He said the current negative pattern will likely deepen, eventually leading to repeal or significant modification of the Affordable Care Act’s insurance regulations. “You’re going to have rising premiums and lower choice. I think the political pressure next year to make changes will be significant,” Blase said. But others such as Sara Collins, vice president for health care coverage and access at The Commonwealth Fund, a foundation that supports independent research on health care practice and policy, don’t see dire signs from the latest insurance developments. She noted that major carriers including Blue Cross, Blue Shield and Kaiser Permanente are not pulling out of exchanges. There is evidence, Collins added, that insurance risk pools tend to be healthier when they’re in larger states such as California. Long-term sustainability, especially where premiums are concerns, appears to be a function of size, which in turn lures multiple carriers who compete with each other for business. Collins said this means the estimated 1,000 U.S. counties with only one insurance carrier are likely to see more significant upward pressure on premiums in coming years, a situation that does, as Blase asserts, seem to suggest the federal government needing to step in. Ideas for intervention range from creating a “public option” similar to Medicare or special high-risk insurance pools to subsidize insurance to cover people with the most expensive medical needs.

Overall, though, Collins said the current information appears to indicate that Obamacare markets are maturing rather than dying. “It’s not surprising that we’re seeing some shake-up in the marketplace this year. There are going to be winners and losers like any competitive market you can think of. Some will compete and gain market share, others won’t,” she said. Additional information on the changes the Affordable Care Act has wrought in California will be forthcoming. The Kaiser Family Foundation is scheduled to release the fourth and final installment of its California health survey on Friday. The survey has tracked the effects of the law across the state since summer 2013. (c)2016 The San Diego Union-Tribune. Visit The San Diego Union-Tribune atwww.sandiegouniontribune.com.

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.

How the Affordable Care Act Challenges Insurers

In the past year, the Affordable Care Act (ACA) has had a more pronounced effect on large and small health insurance carriers, according to an A.M. Best report. The fact that the enrollment population continues to be older and riskier, is having a bigger negative financial effect than anticipated.

Publicly traded companies fared well, reporting an increase in earnings through Sept. 30, 2015. The ACA health insurer fee has affected insurers’ earnings. It was $11.3 billion in 2015 and is a similar amount for 2016. Since the fee is not tax-deductible, it has a greater effect on net income. Many insurers have compensated for the fee through premiums. Since some government-funded programs are more sensitive to premium increases, carriers have not been able to consistently pass the fee along in rates.

To alleviate the growing financial pressure, health insurers are looking at initiatives to control the cost of care, such as disease management programs and better care coordination. As a result, there has been increased collaboration with providers that can benefit all parties involved, including the patient.

Merger and acquisition activity accelerated in 2015 with several large transactions announced during the year. The desire for further diversification is driving the mergers and acquisitions among insurance companies and other health-related businesses. A.M. Best’s outlook for the U.S. health insurance sector was recently revised to negative from stable, largely due to earnings and capitalization pressures as a result of the ACA. The industry pressures are expected to continue to hurt earnings. The lower earnings and growth in premiums from increased membership will result in lower levels of risk-adjusted capitalization.

The merger and acquisition activity will bring additional earnings pressure to the bigger carriers since they will need to service higher debt loads. Since many of these pressures will not subside in the near term, A.M. Best says that there could be more negative rating actions on health insurers.

The report also explores other trends, such as how health insurers are viewing cyber risk, changing consumer demands, emerging member-focused insurers, rising pharmaceutical costs, and 2015 rating trends

U.S. Life and Annuity Insurers Positioned To Address Shifting Tides in 2016

U.S. life and annuity insurers will enter 2016 in relatively good financial condition. Rapid advances in technology, rising customer expectations, and increasing competition will require insurers to reinvent their strategies, services, and processes, according a report by Ernst & Young. Global economic conditions, regulatory and monetary policies, and the political landscape are still concerns for the industry. Life and annuity insurers need to take decisive action to stay ahead of the curve. “After years of bolstering their balance sheets, life-annuity firms are in a strong position to invest in the innovations and technologies needed to fuel growth,” said Doug French, of Ernst & Young. According to the report, life-annuity insurers should focus on these six areas in 2016:

  1. Increase innovation: Insurers should create a culture of innovation, drive innovation through cross-functional teams, and share information openly across departments.
  2.  Reinvent products and services for the new digital customer: If insurers don’t respond to customer demands for greater digital access, better information, and quicker service, they will have a hard time attracting and retaining customers. Priorities in 2016 should include offering multi-device access for customers, providing clearer product information and pricing transparency, delivering more flexible solutions, improving customer engagement, and moving from focusing on products to serving as a trusted advisor.
  3. Adjust distribution strategies for technological and regulatory shifts: Life and annuity insurers may lose market share if they fail to adapt to a multi-channel world. Insurers should adapt services for new distribution models and explore the use of robo-advisors. Insurers need to prepare for new fiduciary standards, as the Dept. of Labor’s proposed fiduciary rule could upend existing distribution models in 2016.
  4. Drive efficiency and market growth: Insurers should determine whether their systems are ready for rapid market change. The assembly-line approach to policy quoting, issuance, and administration can slow application turnaround and detract from the customer and distributor experience. Companies also should ensure that their systems meet new regulatory standards. They should invest in next-generation processes and analytics, revamp IT systems built for simpler times, and consider partnerships to facilitate technology transformation.
  5. Hire the right talent: Insurers need to attract young, diverse workers to match emerging customer demographics and help drive innovation. Priorities for 2016 should include competing for the talent, offering more flexibility in work locations, finding creative ways to motivate and reward employees, and making diversity a priority.
  6. Place cybersecurity high on the corporate agenda: Leveraging social media, the cloud, and other digital technologies will expose life and annuity insurers to greater cyber risks in 2016. Companies will need to take a broad view of potential risks, such as cyber-attacks and reputation risks through social media. Insurers also should establish processes to monitor changing data regulations around the world since their data could reside in multiple jurisdictions and be subject to a variety of laws.

New Law Aims to Reduce Insurance Company Insolvencies

Governor Brown signed Assembly Bill 553 into law. It establishes new oversight tools that are designed to reduce the number of insurance company insolvencies. It aligns state law with standards developed by the National Association of Insurance Commissioners (NAIC). New disclosures and filings will help the Commissioner determine the financial and corporate capacity of companies to conduct business in California, and identify troubled companies quickly enough to avoid insolvencies. It clarifies the role of state insurance departments as group-wide supervisors over multi-national insurance groups, as part of the Insurance Holding Company System Regulator Act. The bill takes effect immediately.

Study: Nonprofit Obamacare Insurers Have Lower Premiums

In most counties where nonprofit and for-profit insurers offered Obamacare health plans, nonprofit insurers offered the cheapest premiums for metal plans, according to a HealthPocket study. Nonprofit insurers offered the lowest Silver plan premiums in 1,072 of the 1,841. Silver plans have been the most popular metal plans during the 2015 open enrollment period, making up 67% of plan selections.

HealthPocket compared Obamacare premiums for 40-year-old non-smokers in the 34 states on the healthcare.gov federal marketplace. Plans on state-based marketplaces are not included in the analysis, nor are off-exchange Obamacare plans, Obamacare catastrophic plans, Medicare plans, short-term insurance plans, and Medicaid plans.

On average, the lowest premiums from for-profit insurers are 0% to 2% higher than the lowest premiums from nonprofit insurers for bronze, Silver, and Gold plans. Nonprofit insurers offered 11% lower premiums than for-profit insurers for Platinum plans. Among the four metal levels, the Platinum plans are the least popular in 2015, accounting for only 3% of plan selections.

Four of the five largest health insurance companies are for-profit insurers, but over 60% of health plans with at least 100,000 enrollees are from nonprofit insurers.

Insurers Fall Short in Mental Health Coverage

Insurers Fall Short in Mental Health Coverage
Health insurance plans are falling short in coverage of mental health and substance abuse conditions according to a report by the National Alliance on Mental Illness (NAMI). The organization surveyed 2,720 consumers and analyzed 84 insurance plans in 15 states.

A federal parity law, enacted in 2008, requires mental health benefits in some employer-sponsored plans to be provided on the same terms as other medical care. Coverage was expanded under the Affordable Care Act (ACA) in 2010. However, the report finds the following problems with mental-health coverage:

  • A Lack of mental health providers is a serious problem in health insurance networks.
  • Nearly a third of survey respondents reported insurance company denials of authorization for mental health and substance abuse care. For ACA plans, denials were nearly twice the rate for other medical care.
  • More than half of health plans analyzed for the report covered less than 50% of anti-psychotic medications.
  • High out-of-pocket costs for prescription drugs discourage people from participating in mental health and other medical treatment.
  • High co-pays, deductibles, and co-insurance rates create treatment barriers.
  • There is a serious lack of information about mental health coverage that would enable consumers to make informed decisions in choosing health plans.

The report makes these recommendations:

  1. Strong enforcement of the 2008 parity law is needed at the federal and state levels, including establishing easily accessible procedures for filing complaints.
  2. Insurance companies should be required to publish the clinical criteria that’s used to approve or deny mental health and medical-surgical care.
  3. Health plans should be required to publish accurate providers lists in their networks and to update them regularly.
  4. The Dept. of Health & Human Services should require all health plans to provide clear, understandable, and detailed information about benefits and make this information easily accessible. HHS should develop tools to help consumers compare plans before enrollment.
  5. Congress and the Executive Branch must work together to decrease out-of-pocket costs under the ACA for low-income consumers.

California Insurers Are on the Brink of Change

changeCalifornia’s insurance market is set to undergo enormous changes as health reform takes full effect and millions become eligible for public insurance or private subsidies, according to a report by the California HealthCare Foundation. The report provides a snapshot of the insurance market in California at the end of 2013, just before the major provisions of the Affordable Care Act (ACA) took effect. It also includes some initial figures from 2014 that point to large shifts in Medi-Cal and individual coverage levels. Researchers looked at data from the Department of Managed Health Care (DMHC), the California Department of Insurance (CDI), and other sources to examine market share, enrollment, financial performance, premiums, public coverage, and consumer satisfaction. The following are Key findings:

  • Health insurance was a $123-billion business in California in 2013, with six carriers accounting for more than three-fourths of all revenues and most insurers operating in the black.
  • In 2013, enrollment shifts were small, except in the pre-ACA individual market.
  • State and federal policy actions brought significant growth to Medi-Cal managed care — about 2.8 million enrollees, a 58% increase in the 18 months ending in June 2014.
  • Covered California enrolled 1.4 million individuals in health insurance plans through 11 carriers in the first enrollment period ending March 31, 2014.
  • Product choice differed by market, with only 20% of individuals enrolled in HMOs and 79% of large group enrollees in HMOs in 2013. This could change in 2014 as the ACA implements sliding-scale premium subsidies and mandates freedom for individual enrollees to choose their product and insurer.

Have Insurers Found a New Way to Weed Out Members?

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Eliminating discrimination on the basis of preexisting conditions is one of the central features of the Affordable Care Act (ACA). But there is evidence that insurers are resorting to other tactics to dissuade high-cost patients from enrolling, according to a study by Harvard’s School of Public Health. The findings suggest that many insurers may be using benefit design to dissuade sicker people from choosing their plans. A recent analysis of insurance coverage for several other high-cost chronic conditions, such as mental illness, cancer, diabetes, and rheumatoid arthritis showed similar evidence of adverse tiering, with 52% of marketplace plans requiring at least 30% coinsurance for all covered drugs in at least one class. Thus, this phenomenon is apparently not limited to just a few plans or conditions.

A formal complaint submitted to the Dept. of Health and Human Services (HHS) in May 2014 contends that Florida insurers offering plans through the new federal exchange had structured their drug formularies to discourage people with HIV from selecting their plans. These insurers categorized all HIV drugs, including generics, in the tier with the highest cost sharing.

Insurers have used tiered formularies to encourage enrollees to select generic or preferred brand-name drugs instead of higher-cost alternatives. But if plans place all HIV drugs in the highest cost-sharing tier, enrollees with HIV will incur high costs regardless of which drugs they take. This effect suggests that the goal of adverse tiering is not to influence enrollees’ drug utilization, but to deter certain people from enrolling in the first place.

Researchers analyzed adverse tiering in 12 states using the federal marketplace: six states with insurers mentioned in the HHS complaint (Delaware, Florida, Louisiana, Michigan, South Carolina, and Utah) and the six most populous states without any of those insurers (Illinois, New Jersey, Ohio, Pennsylvania, Texas, and Virginia).

Researchers found adverse tiering in 12 of the 48 plans — seven of the 24 plans in the states with insurers listed in the HHS complaint and five of the 24 plans in the other six states. There were stark differences in out-of-pocket HIV drug costs between adverse-tiering plans and other plans. Adverse tiering plan enrollees had an average annual cost per drug of more than triple that of enrollees in regular tiering plans ($4,892 vs. $1,615), with a nearly $2,000 difference even for generic drugs. Fifty percent of adverse tiering plans had a drug-specific deductible, compared to only 19% of other plans.

Enrollees may select an adverse tiering plan for its lower premium, only to end up paying extremely high out-of-pocket drug costs. These costs may be difficult to anticipate, since calculating them would require knowledge of an insurer’s negotiated drug prices — information that is not publicly available for most plans.

Second, these tiering practices are likely to lead to adverse selection, with sicker people clustering in plans without adverse tiering. Over time, plans offering generous prescription-drug benefits may see a large influx of sick enrollees, which would reduce profits and lead to a race to the bottom in drug-plan design. The ACA’s risk-adjustment, reinsurance, and risk-corridor programs provide some financial protection to insurers whose enrollees are sicker than average. But the existence of adverse tiering in 2014 suggests that selection opportunities remain. Furthermore, the reinsurance and risk-corridor programs will be phased out after 2016, which will only increase insurers’ incentives to avoid sick enrollees.

Price transparency is one approach to address unexpectedly high out-of-pocket costs for people with chronic conditions. Insurers could be required to list on their formulary each drug’s estimated price to the enrollee, based on the negotiated price and the copayment or coinsurance. However, price transparency would probably accelerate the adverse-selection process if adopted in isolation.

One would be to establish protected conditions in drug formularies. Medicare Part D has designated several protected classes of drugs, including those used for HIV, seizures, and cancer. A similar approach in the exchanges could set an upper limit on cost sharing for medications for protected conditions. Such a policy would reduce financial exposure for people with these conditions even if they chose sub-optimal plans. Other safeguards for protected conditions could also be implemented, such as limits on prior-authorization requirements.

An important additional step would be to require marketplace plans to offer drug benefits that meet a given actuarial value, meaning that the percentage of drug costs paid by the plan (rather than the consumer) would have to exceed a particular threshold. This level could be set at the actuarial value for a given plan (i.e., 70% for silver plans) or above it. In order to significantly increase cost sharing for one drug, an insurer would have to reduce cost sharing for another drug. This step is crucial because it encompasses treatment of all health conditions, not just protected conditions and addresses non–formulary-based methods of passing costs on to consumers that may induce adverse selection (e.g., drug-specific deductibles), according to the report.

Stopping adverse drug tiering will not completely eliminate discrimination in the insurance marketplace. Some insurers will think of new ways to dissuade sick enrollees from joining their plans. Eliminating premium discrimination on the basis of health status was one of the ACA’s chief accomplishments in the non-group insurance market and one of the law’s most popular features. Preventing other forms of financial discrimination on the basis of health status — with the attendant risks of adverse selection in the marketplace — will require ongoing oversight, according to the report. The ACA has already made major inroads in designing a more equitable health care system for people with chronic conditions, but the struggle is far from over

New Law Increases Financial Data Protection for Insurers

Governor Brown signed a law that protects the confidentiality of state investigations into the financial health of insurance companies. Under AB 1234 (Levine), the Department of Insurance cannot be forced to provide sensitive financial data as evidence in a civil proceeding. Commissioner Dave Jones said, “Critical and confidential information necessary to ensure solvency of insurers is now better protected.” The California Department of Insurance sponsored the legislation to align California law and practices with the National Association of Insurance Commissioners (NAIC) Model Act.

Last Updated 10/28/2020

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