Loss of sub­si­dies would hurt some in­sur­ers more than oth­ers

Modern Healthcare - - NEWS - By Bob Her­man

When the Af­ford­able Care Act was passed in 2010, lead­ers of the Marsh­field (Wis.) Clinic’s Se­cu­rity Health Plan saw an op­por­tu­nity to of­fer af­ford­able in­sur­ance prod­ucts to peo­ple in their mostly low-in­come area of cen­tral Wis­con­sin.

Se­cu­rity, a not-for-profit HMO, heav­ily mar­keted plans sold through the fed­eral mar­ket­place and helped thou­sands of Wis­con­sinites sign up. John Kelly, Se­cu­rity’s chief mar­ket­ing and op­er­a­tions of­fi­cer, said the 2014 and 2015 en­roll­ment to­tals “ex­ceeded our ex­pec­ta­tions.” Se­cu­rity had 34,000 ex­change mem­bers as of June, mak­ing it one of the top ex­change plans in the state.

But all of Se­cu­rity’s work could be un­done this month when the U.S. Supreme Court is­sues its de­ci­sion in King v. Bur­well on whether the lan­guage of the ACA al­lows pre­mium sub­si­dies in states that did not es­tab­lish their own ex­change. In­sur­ers and con­sumers in as many at 37 states, in­clud­ing Wis­con­sin, could be af­fected.

If the court rules against the Obama ad­min­is­tra­tion, roughly 6.4 mil­lion Amer­i­cans would lose the pre­mium tax cred­its that make their in­sur­ance af­ford­able un­less states can quickly es­tab­lish their own ex­changes, which ap­pears un­likely. In Wis­con­sin, 91% of 183,000 ex­change-plan en­rollees who re­ceive sub­si­dies are at risk; the av­er­age sub­sidy in the state is $315 a month. Na­tion­ally, the de­ci­sion would af­fect 85% of ex­change-plan mem­bers, who get an av­er­age sub­sidy of $272 a month.

Ex­perts say smaller re­gional in­sur­ers, provider-spon­sored plans and some Blue Cross and Blue Shield plans would be jolted. If peo­ple lost their tax cred­its, they would im­me­di­ately face higher pre­mi­ums that they likely couldn’t af­ford. Most en­rollees would drop cov­er­age, ex­cept for sicker peo­ple who would do ev­ery­thing they could to keep it. This would skew the risk pool, forc­ing in­sur­ers to seek huge pre­mium hikes or exit the mar­ket.

The re­sult? “Im­me­di­ate chaos,” said Larry Le­vitt, se­nior vice pres­i­dent at the Kaiser Fam­ily Foun­da­tion.

The en­tire in­di­vid­ual mar­ket of about 18 mil­lion peo­ple would be dis­rupted. That’s be­cause the in­di­vid­ual mar­ket in each state is a sin­gle risk pool, and un­der the ACA, in­di­vid­u­als can move freely be­tween plans dur­ing open en­roll­ment. If ex­change-plan pre­mi­ums soar, off-ex­change pre­mi­ums would rise as well, and off-ex­change plans would lose cus­tomers, Le­vitt said.

In ad­di­tion, the loss of sub­si­dies would sig­nif­i­cantly weaken the ACA’s re­quire­ment for nearly ev­ery­one to buy cov­er­age. With­out sub­si­dies, many more peo­ple would qual­ify for the law’s man­date ex­emp­tion based on the af­ford­abil­ity of pre­mi­ums. That would threaten the viability of the in­di­vid­ual mar­ket be­cause it would al­low health­ier peo­ple to re­main unin­sured.

Kelly said that sce­nario would be “dis­as­trous,” akin to jump­ing in the lake with­out a life jacket.

“The Supreme Court rul­ing is a chal­lenge to that ba­sic tenet about keep­ing in­sur­ance af­ford­able,” Kelly said. “The sub­sidy is that life jacket. We’re very con­cerned.”

Not all health in­sur­ers would be equally af­fected. Plans that are more re­liant on the in­di­vid­ual mar­ket, with the least di­ver­si­fi­ca­tion, are the most vul­ner­a­ble, said Kather­ine Hemp­stead, direc­tor of health in­sur­ance re­search at the Robert Wood John­son Foun­da­tion.

The new not-for-profit co-op plans, cre­ated through loans au­tho­rized by the ACA to foster com­pe­ti­tion in the in­sur­ance mar­ket, face the great­est risk for their more than 1 mil­lion mem­bers. Most co-op plans al­ready are strug­gling to break even, ac­cord­ing to a Fe­bru­ary re­port from credit-rat­ing agency Stan­dard & Poor’s. “Co-ops cer­tainly couldn’t func­tion with­out th­ese sub­si­dies,” Le­vitt said.

Not-for-profit Blue Cross and Blue Shield com­pa­nies also face risk. Blues plans are dom­i­nant play­ers in sev­eral fed­eral-ex­change states, in­clud­ing Florida, Illi­nois, Michi­gan, North Carolina and Texas.

But their em­ployer line of busi­ness still drives most of their rev­enue. Plus, for some Blues plans, the in­di­vid­ual mar­ket hasn’t been prof­itable so far. Chicago-based Health Care Ser­vice Corp., which of­fers Blues plans in five states, lost $282 mil­lion

in 2014, mostly be­cause of its ex­change plans.

If the sub­si­dies go away for Blues plans, “there would be some kind of sunk cost, but I don’t think it’d be that sig­nif­i­cant,” said Mark Rouck, a se­nior direc­tor who tracks health in­sur­ers at Fitch Rat­ings.

The large pub­licly traded in­sur­ers would be the most in­su­lated, an­a­lysts say. In­di­vid­ual plan mem­bers rep­re­sent a small slice of busi­ness for Aetna, An­them, Hu­mana, Unit­edHealth­care and other large car­ri­ers. Ana Gupte, a man­ag­ing direc­tor at Leerink Part­ners, said ex­change plans are con­tribut­ing less than 1.5% to­ward earn­ings-per-share growth this year for eight public com­pa­nies par­tic­i­pat­ing on ACA ex­changes.

Kelly said his plan would not pull out of Wis­con­sin’s in­di­vid­ual mar­ket if the Supreme Court kills the sub­si­dies. But that could cre­ate grave prob­lems for the ACA’s re­formed in­sur­ance mar­ket as a whole. “Sub­si­dies are an es­sen­tial part of the act in its to­tal­ity,” he said.

“The Supreme Court rul­ing is a chal­lenge to that ba­sic tenet about keep­ing in­sur­ance af­ford­able. The sub­sidy is that life jacket. We’re very con­cerned.” John Kelly Chief mar­ket­ing and op­er­a­tions of­fi­cer Se­cu­rity Health Plan Marsh­field, Wis.

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