Obama obamacare affordable care act
President Barack Obama speaks in Nashville, Tenn., about the Affordable Care Acton Wednesday, July 1, 2015.
(AP Photo/Mark Humphrey)
Highmark recently announced a $318 million loss for the first half of 2015 on customers who bought coverage on the Obamacare online marketplace.
The health insurer said the loss was because many of those customers were sicker, and in need of more medical care, than Highmark expected when setting premiums.
But Highmark declined to detail how much of the $318 million loss might be offset by "risk protections" for insurers built into the Affordable Care Act.
"We anticipate that some portion of this loss may be off-set by payments we may receive under the shared risk provisions of the ACA," a spokesman said in an email.
Some PennLive readers believe the federal government will bail out insurers for losses on plans sold on the online marketplace, also known as the "exchange."
As an online commenter asked, "Shouldn't the headline read 'Taxpayers lose $318 Million on Obamacare Plans'.
Maybe. Maybe not.
It's true there are several protections which can offset losses. But two of them use money collected from the insurers themselves. A third program could involve some taxpayer funds, but there's uncertainty over how much, and it has become a contentious subject in Congress, which capped the amount last year.
The three programs are intended to protect insurers from some of the financial risk that comes from taking on so many new customers, including many who may have gone a long time without health insurance and medical care.
They are also intended to encourage insurers to set the lowest possible premiums, and discourage them from designing plans to lure the healthiest and most profitable customers.
One is called "risk adjustment." This program takes money from insurers with lower-risk member and gives it to plans with higher-risk members.
Another is called "reinsurance," and provides payments to plans with higher-cost members. It's funded with payments made by all insurers, including non-marketplace plans and self-insured health plans.
This third is called "risk corridors." This program collects money from plans with lower than expected claims and gives it to plans with higher than expected claims. However, the risk corridor program might also tap taxpayer funds to offset the losses. The federal government is in the process of figuring it out.
The three programs involve variables and complicated calculations, and it will take more time to know the results for 2015 losses.
Kurt Wrobel, the chief financial officer and chief actuary for Geisinger Health Plan, said the risk corridor program can cover 50 percent of losses to a certain point, and 80 percent of losses above a certain threshold. "Certainly, the risk corridor provides substantial protection," he said.
That program is the one some Republican opponents of Obamacare have characterized as a "bailout." Earlier this year, they introduced legislation to eliminate it.
But supporters argue risk corridors are a well-established means of offering protection against the risks of a new market, and point out the concept was part of the Republican-led Medicare Part D program.
Highmark isn't alone in reporting a big loss on plans sold on the marketplace. For example, Blue Cross and Blue Shield of Texas lost about $400 million in plans sold to individuals on the exchange for 2014. Health insurers are presently awaiting word from the federal government regarding the risk corridor payments.
Still, the loss prompted the Texas plan to announce it will no longer offer a PPO plan on the Obamacare marketplace. It will continue to offer an HMO plan, which has more restrictions than a PPO, but normally has lower premiums.
Highmark declined to discuss in detail how the risk protections will affect its bottom line.
According to federal records, Highmark received a total of $156 million from two of the programs, risk adjustment and risk protection, for 2014. That represents money collected from health insurers.
Geisinger Health Plan is another insurer that ended up with sicker than expected customers, and ended up spending much more than expected on their medical needs.
Geisinger provided these figures to shed light on the impact of the risk protections:
On its PPO plan, Geisinger spent $1.52 in medical costs for every $1 it collected in premiums. After the risk adjustment and risk protections were applied, the payout was $1.21 for every $1 in premiums collected.
On its HMO plan, Geisinger paid out $1.40 for every premium dollar. After the two risk protections, payout fell to $1.12 for every premium dollar.
Geisinger's Wrobel said he was still awaiting numbers and didn't know the impact of the risk corridors protection.
Whatever the impacts, the risk protections are only temporary, with reinsurance and risk corridors going away after 2016. The risk adjustment program is permanent.
The programs were created based on the expectation that insurers might incur big losses during the first three years of health insurance plans sold under the Affordable Care Act.
That's because of big insurance market changes brought about by the ACA. Insurers can no longer deny coverage to people based on pre-existing medical conditions. They also face new limits on how much extra they can charge people because of age or medical status.
On top of that, because of the availability of government subsidized coverage, and the mandate that everyone must have health insurance, it was expected that insurers would have many new customers, but would have no medical histories of those customers, and thus be severely limited in their ability to accurately predict costs and set premiums.
Beyond that, the goal was to create a competitive market, with insurers competing for customers based on cost and quality, instead of striving to attract only healthier people by devising plans that are less attractive to people who use a lot of medical care.
With those things in mind, the risk protections were devised as a buffer against heavy losses during the time it takes insurers to gain experience with customers needed to set accurate premiums.
It's expected that, after three years, and with two years of claims experience under their belts, insurers will be able to set accurate premium rates.
Highmark and Geisinger, among others, have responded by the losses by requesting big premium increases for 2016 coverage. Highmark, for example, has said it plan to increase 2016 premiums by 25 to 30 percent.
It's worth noting that Highmark sold marketplace plans to about 219,000 Pennsylvania residents, more than any other insurer, and also had some of the nation's most affordable premiums.
Highmark is also expected to adjust its 2016 offerings, cutting back on the number offered, and limiting provider chose -- narrow networks -- as a way of lowering costs.
Note: this article was revised. An earlier version incorrectly described the level of risk protections provided by risk adjustment and reinsurance.