California’s Three Largest Health Insurers Among Few to Show Obamacare Profit in 2014

The Los Angeles Times reports that Blue Shield of California led the country with $107 million in profit on Obamacare policies sold to individuals. Kaiser Permanente was second with $66 million, and Anthem Blue Cross ranked seventh nationally with a $9-million surplus in the Covered California exchange.  In the first year of the massive coverage expansion, California’s three largest health insurers bucked the national trend of heavy losses and accounted for half of the gains reported under the Affordable Care Act in 2014.

Blue Shield of California led the country with $107 million in profit on Obamacare policies sold to individuals. Kaiser Permanente was second with $66 million, and Anthem Blue Cross ranked seventh nationally with a $9-million surplus in the Covered California exchange.

Nationwide, insurers reported just $362 million in total profit under a federal rate-stabilization program, while most insurers recorded big losses — a total of $2.87 billion.

Critics have seized on the industry losses as a sign that the health law is failing. Those concerns were amplified when the nation’s largest insurer, UnitedHealth, warned that it may quit selling Obamacare policies because the business was so unprofitable. Now some experts point to California’s experience as a sign that this can be an attractive business for insurers — so much so that it has raised questions about whether state officials should have pushed harder for lower rates.

The data show insurers did not do well nationally, said Larry Levitt, a senior vice president at the nonprofit Kaiser Family Foundation. But in parts of the country where things were working smoothly, like California, insurers were making money.

This new federal data offer the most extensive look yet at how insurance companies fared under the new rules of the Affordable Care Act. The figures are part of a risk corridors program designed as a temporary cushion against high medical claims during the first three years of the national healthcare overhaul.

Under the program, insurers that made money were required to send those funds to the federal government to offset the losses of other companies participating in Obamacare. The arrangement means that California insurers won’t keep these 2014 profits.

Neither will the companies that lost money be made whole right away. The losses were so widespread, and the gains so paltry, that the federal government could only cover 13 cents for every dollar the companies lost. Officials have vowed to use money from this year and 2016 to pay what’s already owed.

Several factors helped California health plans outperform the nation, including strong early enrollment and a politically unpopular decision on policy cancellations. Amid a national uproar, Covered California defied the Obama administration and required participating insurers to cancel existing individual policies at the end of 2013.

That move created a healthier, more diverse mix of old and new policyholders at the start of the exchange. About 35 other states allowed consumers to stay longer on health plans that didn’t comply fully with the new law. That decision left many states with a smaller and sicker population signing up for Obamacare. Many new enrollees had been denied coverage previously because of pre-existing conditions.

“Federal data show that California had the healthiest risk pool of all 50 states,” said Mike Beuoy, a vice president and actuary at Blue Shield. But he and other industry officials say it was hard to predict what would happen heading into the first year of Obamacare coverage.

“We were setting rates for 2014 in the absence of any hard information on what the risk pool would look like,” Beuoy said.

Insurers noted that these excess profits represent a small percentage of the $4.6 billion in premiums paid in the Covered California exchange during 2014. Taxpayers paid about 70% of those premiums through federal subsidies that consumers received based on their income, state data show. “In hindsight, the rates we charged in the individual market were higher than they needed to be,” said Mick Diede, chief actuary at Kaiser Permanente, the state’s largest insurer. For 2015, Kaiser cut its rates 1.4%, on average.

“I think the California experience was a bit of an anomaly,” Diede said. We expect it to even out. Other California insurers may have been helped by the fact that many consumers had difficulty finding a doctor or getting care during 2014. That could have reduced medical claims, boosting the bottom line for companies.

Blue Shield and Anthem Inc., in particular, struggled to deal with the surge of applicants early on and then compounded those enrollment glitches with inaccurate provider directories, regulators found. Officials at Covered California and the insurers say they are examining to what extent those barriers reduced claims.

Michael Johnson, a former Blue Shield official and now a company critic, said the San Francisco insurer should issue more refunds to customers. Blue Shield made this huge profit because they hindered access to care, he said. The company already paid rebates worth $62 million to its individual policyholders for 2014 because it didn’t spend a minimum of 80% of premiums on medical care. A spokesman for Blue Shield said its customer service and provider information have both improved since last year.

A recent report underscores how well California health insurers have held the line on spending premium dollars on medical care despite enormous changes in the market. California was one of only three states nationwide in 2014 where insurers paid out less than 80 cents of every dollar in premiums on medical care, according to Urban Institute researchers. The state went from 81.5% in 2010 to 79.8% last year for the individual market.

Last year’s surplus in California might prompt regulators to take a closer look at the rates that individuals and families are paying for Obamacare. Did Covered California push as hard as it could on rates? It’s a legitimate question to ask, said Katherine Hempstead, who studies health insurance issues at the Robert Wood Johnson Foundation. Unlike most other states, California negotiates premiums with health plans and doesn’t allow every insurer into its exchange.

Peter Lee, Covered California’s executive director, said the state has been effective at achieving stable rates that spare most consumers from double-digit increases annually. The average rate increase in Covered California was 4% for both 2015 and 2016.

A few plans in California made a little bit more than they thought they would in 2014, Lee said. This is evidence the California exchange market can work for patients as well as health plans.

Blue Shield Of California Under Pressure

Blue Shield Of California Under Pressure
Blue Shield of California has been in the news lately and not in a good way. The Los Angeles Times originally broke the story that the company has been stripped of its tax-exempt status. Also in the news, the company’s former chief technology officer is suing after being dismissed before collecting on his $450,000 bonus.

Tax authorities stripped Blue Shield of California of its tax-exempt status in California and ordered the company to file returns dating to 2013, potentially costing the company tens of millions of dollars. Insurance commissioner Dave Jones said, “The Franchise Tax Board decision to terminate Blue Shield’s tax-exempt status confirms what I have said for years – that Blue Shield charges excessive rates and acts like a for-profit health insurer. Blue Shield is also dodging the payment of premium taxes by taking advantage of a legal loophole that allows Blue Shield to move its health insurance products from Department of Insurance regulation to Department of Managed Health Care regulation.”

The Department of Insurance collects premium taxes from all for-profit and non-profit health insurers. Jones said that Blue Shield has moved most of its health insurance policies over to the Department of Managed Health Care. “We need to pass AB 1434 by Assembly member Kevin McCarty to close the loophole that allows Blue Shield to move its health insurance products to the Department of Managed Health Care to avoid the strong consumer protection oversight of the Department of Insurance and avoid paying premium taxes,” he said. The Blue Shield loophole costs the state $100 million in premium taxes annually. As a tax-exempt company with surplus of $4.2 billion Blue Shield was able to accumulate an enormous amount of money on which it did not pay state taxes by evading the tax on the premiums it collects, he added.

Blue Shield of California issued the following statement in response: Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community. A longtime supporter of healthcare reform, we limit our net income to 2% of revenue and have contributed $325 million to our foundation’s efforts to improve the health safety net and address domestic violence. We pay federal income taxes, state gross premium tax and Affordable Care Act taxes and fees. We believe we meet the requirements for a state income tax exemption and have challenged the California Franchise Tax Board’s finding to revoke our tax exempt status. We filed California state income tax returns beginning in the 2013 tax year. The FTB decision has no bearing on our ability to continue to meet the needs of our members and community and we remain in strong financial health. Regardless of whether we prevail in our tax dispute, we will remain a not-for-profit.

Kaiser Is the Only Exchange Plan to Lower its Rates

The Los Angeles times reports that Kaiser is lowering its rates for Obamacare coverage in California by 1.4% next year.California’s health insurance exchange recently announced that premiums were rising 4.2%, on average, statewide for 2015 policies. A new analysis by Citigroup healthcare analyst Carl McDonald offers new details on what consumers can expect by company. Kaiser was among the most expensive health plans in 2014 and staggered to a fourth-place finish in exchange enrollment. Anthem Blue Cross was the leader statewide, followed by Blue Shield of California and Health Net Inc. Kaiser doesn’t seem particularly happy with its exchange market share, as it is the only company reducing exchange premiums in 2015, McDonald told the LA Times.

Rates for Anthem Blue Cross, a unit of industry giant WellPoint Inc., are going up 4.6%, on average, according to Citigroup.Blue Shield’s increases are 6% statewide and Health Net is raising premiums by 4.9%. Despite those 2015 rates going in different directions, McDonald and other industry analysts are skeptical that Kaiser will gain much ground on its rivals. Even with the slight decrease, Kaiser’s HMO remains one of the more expensive options.

Next year, Health Net’s HMO remains the cheapest coverage on the silver tier in L.A. at $231 a month for a 40-year-old, up $7 from this year’s premium. Those low rates made Health Net the market leader in L.A. with 33% market share, beating out Blue Shield and Anthem.

Those three insurers and Kaiser together accounted for 94% of Covered California’s initial enrollment of 1.4 million people under the Affordable Care Act. About 1.2 million actually completed the sign-up process and started paying their premiums, according to state estimates.

These rates are still subject to review by regulators before open enrollment for 2015 starts Nov. 15. The changes in premiums for each company also vary by region and the type of health plan. Among the smaller, regional health plans, L.A. Care is boosting its HMO premiums by 11.3%, according to Citigroup research. That’s the biggest percentage change for any insurer in the state.

Public Officials Criticize Kaiser for Rate Hikes

Kaiser is drawing complaints from employers who say the company’s policies are no longer the bargain for quality care that they once were. The Los Angeles Times says (http://lat.ms/13FtqWK ) Kaiser Permanente rejects the criticism, reporting it’s still a great bargain with prices that are often 10% below its rivals.
Officials managing retired state employees and public employees in Los Angeles and San Francisco have criticized ever-rising premiums. Officials at CalPERS – which is the nation’s third-largest health care buyer – say Kaiser’s premiums have gone up 65% since 2007. Other HMO premiums have gone up, too, but not as much.

Covered California Faces Criticism Over Plan To Partner With Wal-Mart

Covered California — the state’s health insurance exchange — is facing criticism over a plan to allow Wal-Mart to enroll individuals in the health plans offered through the new insurance market, the Los Angeles Times reports Covered California officials want employees at Wal-Mart and other retailers to help individuals learn about and purchase health plans offered through the state health insurance exchange.

However, labor unions and consumer advocates oppose the idea, arguing that Wal-Mart and similar retailers should not advise others on health coverage when many of their workers do not qualify for employer-sponsored health insurance and instead get benefits through Medi-Cal, California’s Medicaid program.

James Araby — executive director of the United Food & Commercial Workers Union’s Western States Council told the LA Times, “We are appalled and offended that the exchange would contemplate partnering with Wal-Mart and other retailers notorious for failing to provide health benefits to many of their workers and providing substandard benefits to the workers who do qualify.” Wal-Mart defended its employee health benefits and said that they exceed what many retailers typically offer their workers. A spokesperson for Wal-Mart said that it is too early to discuss a partnership with the exchange.

Labor leaders met with Covered California officials with a goal of developing requirements for retailers that partner with the exchange to ensure they are providing comprehensive health benefits for workers. Union leaders said they will pursue legislation if they cannot reach an agreement with exchange officials.

Peter Lee — executive director of Covered California – told the LA Times, We are not changing our retail strategy, and it would be a distraction to have legislation about setting different standards for who the exchange can work with.”

Last Updated 10/20/2021

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