Will Rubio’s Measure Undermining ACA Survive?

Republicans stated goal is to “repeal and replace” the Patient Protection and Affordable Care Act. That hasn’t happened and won’t at least through the remainder of President Barack Obama’s term. So a secondary line of attack is to undermine the ACA. And Senator Marco Rubio has had success in that regard.

As reported by The Hill, Senator Rubio accomplished this feat by weakening the ACA’s risk corridors program. Whether this is a long- or short-term victory is being determined in Washington now. We’ll know the answer by December 11th

President Obama and Congress recognized that, given the massive changes to the market imposed by the ACA, health plans would have difficulty accurately setting premiums. Without some protection against under-pricing risk, carriers’ inclinations would be to price conservatively. The result would be higher than necessary premiums.

To ease the transition to the new world of health care reform, they included three major market stabilization programs in the Affordable Care Act. One of them, the risk corridors program, as described by the Kaiser Family Foundation, “limits losses and gains beyond an allowable range.” Carriers experiencing claims less than 97% of a targeted amount pay into a fund; health plans with claims greater than 103% of that target receive funds.

The risk corridor began in 2014 and expires in 2016. As drafted, if payments into the fund by profitable insurers were insufficient to cover what was owed unprofitable carriers the Department of Health and Human Services could draw from other accounts to make up the difference.

Senator Rubio doesn’t like risk corridors. He considers them “taxpayer-funded bailouts of insurance companies at the Obama Administration’s sole discretion.” In 2014 he managed to insert a policy rider into a critical budget bill preventing HHS from transferring money from other accounts into the risk corridors program.

The impact of this rider has been profound.

In October HHS announced a major problem with the risk corridors program: insurers had submitted $2.87 billion in risk corridor claims for 2014, but the fund had taken in only $362 million. Subsequently, payments for 2014 losses would amount to just 12.6 cents on the dollar.

This risk corridor shortfall is a major reason so many of the health co-ops established under the ACA have failed and may be a factor in United Health Group to consider withdrawing from the law’s health insurance exchanges. (United Health was not owed any reimbursement from the fund, but likely would feel more confident if the subsidies were available).

The Obama Administration certainly sees this situation as undermining the Affordable Care Act. In announcing the shortfall, HHS promised to make carriers whole by, if possible, paying 2014 subsidies out of payments received in 2015 and 2016. However, their ability to do so is “subject to the availability of appropriations.” Which means Congress must cooperate.

Which brings us back to Senator Rubio’s policy rider. It needs to be part of the budget measure Congress must pass by December 11 to avoid a government shutdown. If the policy rider is not included in that legislation, HHS is free to transfer money into the risk corridor program fund from other sources.

Senator Rubio and other Republicans are pushing hard to assure HHS can’t rescue the risk corridors program claiming to have already saved the public $2.5 billion from a ‘crony capitalist bailout program.” Democrats and some insurers, seeing what’s occurred as promises broken, are working just as hard to have it removed.

By December 11th we’ll know whether the ACA is further undermined or bolstered.

 

ACA Co-op Troubles Not Surprising

Strong support emerged during the Congressional deliberations that led to the Patient Protection and Affordable Care Act behind a government-run health plan to compete with private carriers. The “public option” failed, but did create political space for the concept of consumer-owned, non-profit health insurance co-operatives. The co-ops found their way into the ACA, but now, as a group, are in big trouble. Eight of the nation’s 23 health co-ops are going out-of-business and more may follow.

The Case for Health Co-ops

Then Senator Kent Conrad championed health co-operatives during the health care reform debate. Modeled after the electrical co-ops in his home state of North Dakota, he saw them as health plans owned by local residents and businesses. They would receive start-up money from the federal government, but otherwise would compete against private carriers on a level playing field.

Co-op advocates hoped they would bring competition to markets dominated by too few private carriers. In addition, they expected these non-profits to provide individual consumers and small businesses additional affordable health insurance choices. With focus on the first goal, health co-ops might be in a better place today. Unfortunately, too often they sprung up in states where competition was already strong.

The ACA set-up a roughly $6 billion fund to help get “Consumer Operated and Oriented Plans” up-and-running. The long-term financial viability of health co-ops was to flow from premiums paid by those they insured and the “Three Rs”—programs established by the ACA “to assist insurers through the transition period, and to create a stable, competitive and fair market for health insurance.” Specifically these were the ACA’s reinsurance, risk adjustment and risk corridor programs.

It’s Tough Being New

A (not so) funny thing happened on the way to the health co-ops’ solvency. Starting a health insurance plan is difficult and failure always an option. (I know. I was executive vice president at start-up SeeChange Health, an insurer that failed last year.) New carriers, by definition, have no track record, no data concerning pricing, provider reimbursements, claim trends, and the like. Their first foray into the market is an educated guess. Worse, new plans usually have a small membership base. This provides little cushion against the impact of miscalculations or unwelcome surprises.

A new health plan launching in the midst of the industry’s transition to a post-ACA world faced added exponentially greater difficulties. In 2013, when most of the health co-ops launched, no one knew what the market would look like in 2014. Exchanges, metallic plan requirements, guarantee issue of individual coverage and more were all happening at once. Were employers going to stop offering coverage? How were competitors going to price their offerings? Would provider networks be broad or narrow? The questions were endless; the answers at the time scarce. In a speech during the lead-up to 2014 I described the situation as carriers “playing chicken on tractors without headlights in a dark cave while blindfolded–at night.”

This is the world into which ACA-seeded health co-ops were born. That they now face  serious financial problems should surprise no one. They saw themselves as “low-cost alternatives” in their markets. If they were going to err in setting prices it was not going to be by setting premiums too high.

Besides, if they priced too low they were protected by the risk corridor program. As described by the Centers for Medicare & Medicaid Services, which manages the ACA’s financial safety net, the “risk corridors program provides payments to insurance companies depending on how closely the premiums they charge cover their consumers’ medical costs. Issuers whose premiums exceed claims and other costs by more than a certain amount pay into the program, and insurers whose claims exceed premiums by a certain amount receive payments for their shortfall.”

The majority of the nation’s health co-operatives saw claims exceeding premiums. Being on the “shortfall” side of the equation, the government was to come to their rescue like the proverbial cavalry with the money needed to keep them going.

Except the cavalry is a no-show. Too few carriers had too little claims surpluses to cover the too large losses of too many health plans. Only 12.6 cents on the dollar due under the risk corridor program is expected to make it to plans on the shortfall side of the equation the CMS announced on October 1st.

The Math Always Wins

Several of the health co-ops were in financial trouble before this news. Losing millions of dollars in expected relief doomed more. As of today, the dollars-and-cents have failed to add up for CoOportunity Health (the co-op in Iowa and Nebraska), the Kentucky Health Cooperative (which also served West Virginians), Louisiana Health Cooperative, Health Republic Insurance of New York, Health Republic Insurance of Oregon, the Nevada Health CO-OP, Community Health Alliance (a Tennessee co-op), and the Colorado HealthOP. Just to use the Colorado situation as an example, the Colorado HealthOp needed $16.2 million; they expect to receive $2 million.

Do these failures mean health insurance co-ops are a bad idea? Not necessarily. What they point to is that health co-ops may have been better off focusing on bringing competition to markets where there were too few plans, not joining a pack where there were enough. Even then, the collapse of the risk corridor program may have doomed them, but they’d have stood a better chance.

As noted above, Senator Conrad modeled the health co-operatives on electrical co-ops found in some rural communities. Where too few customers make it unprofitable for traditional utilities to invest in the infrastructure required, consumers, seeking electricity, not profits, come together to extend the grid.

Those implementing the ACA should have followed this model. Instead of funding 23 health co-operatives, the Administration should have offered seed money to fewer co-ops located where they would be the alternative in the market, not just another one. This may have allowed them to extend financial support long enough to at least partially offset the risk corridor shortfall. Then, just maybe, we could have avoided the “surprise” of failing health co-ops.