Evergreen’s case
Rules that are forcing innovative health insurance companies to pay millions to legacy carriers must be changed to preserve the intent of the ACA
The lawsuit Baltimore’s Evergreen Health Cooperative filed last week against the federal government over its implementation of the Affordable Care Act isn’t a matter of whether the fledgling company survives — officials insist it will make it either way — or even when it will turn a profit. Rather, it’s a question about whether the ACA actually lives up to its promise to make American health care better and more affordable or whether it merely pours more money into a broken system.
The ACA has been successful at reducing the number of uninsured in this country, but it has fared less well at fostering innovative approaches to delivering health care. Evergreen is a notable exception to the rule. It provides the elements of traditional insurance but also a heavy emphasis on evidence-based, patientcentered primary care and health and wellness coaching. It runs its own network of primary care offices where doctors’ limited caseloads allow them to spend far longer with patients than is typical, offering the opportunity for more prevention and better coordination of care. A handful of other co-ops sprung up around the country under the ACA, but most have already failed. Evergreen, though, is growing rapidly; as of April, it had nearly 40,000 members, more than triple its enrollment at the end of 2014.
But the way the federal government is administering a few provisions of the ACA is posing problems for Evergreen — and, increasingly, for other insurers across the nation.
At issue are measures designed to help insurers make the transition to Obamacare’s rules like the prohibition on rejecting consumers with pre-existing conditions. One is a temporary system of “risk corridors” payments designed to address the difficulty of predicting costs under the new rules by compensating insurers whose premiums fall short of claims and charging assessments of those whose premiums are too high. Because Congress has refused to authorize any funds for the purpose, the government is paying insurers less than 13 percent of what they’re due. That failure is the subject of a growing number of lawsuits around the country.
Evergreen is focusing on a second issue: risk adjustment. Because of the uncertainty associated with the influx of new customers under the ACA, the law includes a mechanism that assesses the health of individuals in a given insurance plan based on their age, gender and chronic health conditions, then takes money from companies with healthier-than-average customers and gives it to those whose customers are sicker. In practice, that has resulted in new and fast-growing companies like Evergreen being required to cut huge checks that wind up in the pockets of big, legacy carriers. Evergreen estimates it will face a payment of about $22 million later this summer, or about a quarter of its 2015 revenue. Similar companies in other states will likely face the same problem.
In its lawsuit, Evergreen alleges that certain elements of the Obama administration’s implementation of risk adjustment favor established companies over new ones in ways that are arbitrary and capricious — and hence illegal, particularly given Congress’ failure on the risk corridors payments. Recent actions by the Centers for Medicare and Medicaid Services suggest the federal government at least acknowledges that they are bad policy. It is adopting key reforms that Evergreen and companies like it have been demanding, but not until 2018, when it may be too late for some new entrants in the marketplace. Evergreen CEO Peter Beilenson estimates that a full risk corridors payment would allow Evergreen to recoup 60 percent to 80 percent of its risk adjustment charge.
We are in no position to judge whether Evergreen’s lawsuit will succeed, but we agree with the Hogan administration’s insurance commissioner, Alfred W. Redmer Jr., who has repeatedly made the point to members of Congress and the Obama administration that the way this provision of the ACA is working in practice is directly counter to the overall goal of the law. The ACA was supposed to foster competition and innovation in the health insurance market to provide better care at lower cost. That’s what Evergreen and companies like it are doing, and the Obama administration needs to take steps to protect them now, not in 2018.