How some Blues made the ACA work while oth­ers failed

Modern Healthcare - - NEWS - By Bob Her­man

The in­di­vid­ual health in­sur­ance mar­ket­place is not a small cap­il­lary for Blue Cross and Blue Shield of Arkansas, the dom­i­nant in­surer in the fourth-poor­est state in the coun­try. It’s a main artery. And the good news for the Arkansas Blues is that the in­di­vid­ual mar­ket—a “dis­as­ter” ac­cord­ing to pres­i­den­tial hope­ful Don­ald Trump—is pump­ing black ink, not the blood-red ink re­ported by some in­sur­ers sell­ing in­di­vid­ual plans on the Af­ford­able Care Act ex­changes across the coun­try.

The in­surer, a not-for-profit mu­tual owned by USAble Mu­tual In­sur­ance Co., cap­tured nearly 90% of Arkansas’ in­di­vid­ual health plan mar­ket, which in­cludes poli­cies sold on and off the ex­change as well as pri­vate-op­tion Med­i­caid plans. The com­pany in­vested in plans that had cheaper pre­mi­ums but lim­ited net­works of hos­pi­tals, doc­tors and phar­ma­cies—the types of plans that have been at­trac­tive to price-sen­si­tive con­sumers.

The state also had some spe­cial sit­u­a­tions with its in­di­vid­ual mar­ket. A unique Med­i­caid waiver gave cer­tain low­in­come peo­ple the abil­ity to pur­chase pri­vate sub­si­dized cov­er­age on the ex­change. Wal-Mart Stores, which is head­quar­tered in Arkansas, also de­cided to cut health ben­e­fits for em­ploy­ees who work less than 30 hours per week in 2015, giv­ing the ex­change a small but in­flu­en­tial crop of el­i­gi­ble mar­ket­place en­rollees.

Those strate­gies and cir­cum- stances al­lowed the Arkansas Blues to post a 6.2% un­der­writ­ing mar­gin in its in­di­vid­ual busi­ness last year and over­all pos­i­tive re­sults. The com­pany “weath­ered the first phase of ACA mar­ket­place tran­si­tion well and (is) in a sound com­pet­i­tive po­si­tion,” the firm said in its an­nual fi­nan­cial fil­ing.

Next door, in Ten­nessee, a much dif­fer­ent story un­folded. Blue Cross and Blue Shield of Ten­nessee posted an un­der­writ­ing loss of $195.7 mil­lion on $866.4 mil­lion of rev­enue in 2015 just from its in­di­vid­ual plans—a neg­a­tive mar­gin of al­most 23% that gets worse when ad­min­is­tra­tive ex­penses are tacked on. That siz­able deficit prompted the in­surer to bail on the ex­change next year in Knoxville, Mem­phis and Nashville, the state’s three largest cities.

Ten­nessee did not ex­pand Med­i­caid el­i­gi­bil­ity like its western neigh­bor. Ex­perts also say a uni­fied provider com­mu­nity in Ten­nessee likely made ne­go­ti­a­tions tougher. Ul­ti­mately, the Ten­nessee Blues’ mar­ket­place mem­bers “had more health needs than we an­tic­i­pated,” the com­pany said in a Septem­ber let­ter to its mem­bers.

Glar­ing dif­fer­ences

These wildly dif­fer­ent ex­pe­ri­ences with the ACA mar­ket­places played out across 34 not-for-profit and mu­tual Blue Cross and Blue Shield brands in 2015, ac­cord­ing to a Mod­ern Health­care anal­y­sis of fi­nan­cial fil­ings lodged at the Na­tional As­so­ci­a­tion of In­sur­ance Com­mis­sion­ers. Com­pa­nies in Alabama, Illi­nois, Min­nesota and Texas fared poorly in the sec­ond year on and off the in­di­vid­ual mar­ket­places. Blue Cross and Blue Shield of Ne­braska has since dropped

all on-ex­change plans for 2017.

But Blues plans in Florida, Michi­gan and New Jersey in­curred few prob­lems and have thrived. Over­all, half of the 34 ex­am­ined plans, which sold prod­ucts in 31 states, posted pos­i­tive un­der­writ­ing mar­gins last year.

The re­sults par­al­lel the di­verg­ing ex­pe­ri­ences of for-profit and other not­for-profit in­sur­ers na­tion­wide. Al­though some like Aetna, Hu­mana and Unit­edHealth Group suf­fered mas­sive losses and are re­treat­ing from the ex­changes, oth­ers like Kaiser Per­ma­nente, Cen­tene Corp., Molina Health­care and UPMC Health Plan have han­dled the new mar­kets with rel­a­tive ease.

Le­git­i­mate prob­lems have been raised by in­sur­ers. They in­clude in­ad­e­quate con­sumer sub­si­dies, in­ad­e­quate penal­ties, high out-of-pocket costs, and en­roll­ment loop­holes. But data show the ACA’s ex­per­i­ment in build­ing a vi­able in­di­vid­ual in­sur­ance mar­ket is not go­ing down in flames.

In­sur­ers are hav­ing mod­est suc­cess in states where Med­i­caid was ex­panded and tran­si­tional “grand-moth­ered” plans were not ex­tended. Those statelevel is­sues are hav­ing a ma­jor in­flu­ence on whether in­sur­ers make money on and off the ex­changes, said Larry Le­vitt, a se­nior vice pres­i­dent and health in­sur­ance ex­pert at the Kaiser Fam­ily Foun­da­tion. In­deed, there are a num­ber of states where in­sur­ers, even though los­ing money, are re­main­ing ac­tive be­cause they see the mar­kets as even­tu­ally sta­bi­liz­ing and be­com­ing prof­itable, ex­perts say.

“Some peo­ple are go­ing to be suc­cess­ful, and some peo­ple aren’t,” said Craig Garth­waite, a health econ­o­mist at North­west­ern Uni­ver­sity. “We shouldn’t ex­pect ev­ery­one is go­ing to be prof­itable in a newly cre­ated in­sur­ance mar­ket.”

The Blues plans find­ing suc­cess built nar­row net­works, which, while alien­at­ing some health in­sur­ance shop­pers, keep costs down. At sev­eral Blues, ac­tu­ar­ies pre­dicted the risk ac­cu­rately and priced ac­cord­ingly, which en­abled them to run in the black. Com­pa­nies los­ing money of­ten low-balled their risk—and their prices—in a bid to gain mar­ket share. Oth­ers that had suc­cess de­cided not to rely on the shaky prom­ises of the ACA’s risk-cor­ri­dor pro­gram, which Repub­li­cans in Congress re­fused to fund. Suc­cess­ful plans also were able to ne­go­ti­ate fa­vor­able re­im­burse­ment rates with providers.

“It’s clear not ev­ery sin­gle Blue Cross and Blue Shield plan is los­ing its shirt,” said Sab­rina Cor­lette, a re­search pro­fes­sor at Ge­orge­town Uni­ver­sity’s Cen­ter on Health In­sur­ance Re­forms. “It’s just hard to put your fin­ger on: What’s the magic for­mula?”

The 34 Blues plans and sub­sidiaries in the Mod­ern Health­care anal­y­sis, which did not in­clude for-profit An­them, had com­bined rev­enue of $135.4 bil­lion in 2015. Nearly $24 bil­lion of that to­tal came from the in­di­vid­ual mar­ket that the ACA over­hauled.

The com­bined rev­enue num­ber only en­com­passes fully in­sured, in­di­vid­ual poli­cies and not the sub­stan­tial fees that are col­lected from ad­min­is­tra­tive con­tracts with self­in­sured em­ploy­ers. Nearly all of the in­di­vid­ual pre­mi­ums are de­rived from ACA plans sold on and off the ex­changes.

Un­der­writ­ing gains and losses cal­cu­lated for the in­di­vid­ual mar­ket do not in­clude ad­min­is­tra­tive ex­penses, taxes and other op­er­at­ing costs. While those ex­penses could turn slim sur­pluses into net losses, the core un­der­writ­ing num­bers show how well each Blues in­surer priced the risk pool in their re­spec­tive mar­kets, which ex­perts view as a bell­wether for each state’s mar­ket suc­cess. The 2015 claims data were largely used to cre­ate 2017 ACA-com­pli­ant prod­ucts and es­tab­lish their rates. Open en­roll­ment starts Nov. 1.

The 34 Blues plans cu­mu­la­tively had an un­der­writ­ing loss of $1.36 bil­lion in the ACA’s in­di­vid­ual mar­ket in 2015, which amounted to a neg­a­tive 5.8% mar­gin. But per­for­mance var­ied widely by state. For next year some in­sur­ers are ask­ing for and re­ceiv­ing dou­ble-digit pre­mi­ums hikes, a fact that has dom­i­nated me­dia ac­counts of ACA ex­changes’ per­for­mance.

“We need to get peo­ple to sign up dur­ing open en­roll­ment and not sign up dur­ing the spe­cial en­roll­ment pe­riod.” Carl McDon­ald, se­nior vice pres­i­dent of trea­sury, in­vest­ments and busi­ness de­vel­op­ment at Health Care Ser­vice Corp.

Sev­eral Blues ex­ec­u­tives said health plans that cre­ated broad net­works of hos­pi­tals and doc­tors with lower out-of-pocket pay­ments faced ad­verse se­lec­tion and lost lots of money. High-cost pa­tients with chronic health con­di­tions flocked to buy their cov­er­age while health­ier con­sumers ab­stained.

“It’s very dif­fi­cult to be the only com­pany in the mar­ket that has a PPO of­fer­ing,” said Carl McDon­ald, se­nior vice pres­i­dent of trea­sury, in­vest­ments and busi­ness de­vel­op­ment at Health Care Ser­vice Corp., the owner of Blues plans in Illi­nois, Mon­tana, New Mex­ico, Ok­la­homa and Texas. HCSC’s to­tal losses on the in­di­vid­ual mar­ket from 2014 through this year are ap­proach­ing $3 bil­lion, McDon­ald said. PPO plans have since been elim­i­nated in the com­pany’s ex­change busi­ness.

Mean­while, Hori­zon Blue Cross and Blue Shield of New Jersey only sold exclusive provider or­ga­ni­za­tion plans, or EPOs, a form of nar­row net­works, in the ACA mar­ket­place in 2015. Hori­zon posted an un­der­writ­ing gain of $142.4 mil­lion in the in­di­vid­ual busi­ness, equal­ing a 17.9% mar­gin, ac­cord­ing to the anal­y­sis.

Some in­sur­ers that of­fered PPO op­tions still man­aged to turn a siz­able mar­gin. Florida Blue, which sat in a com­pet­i­tive ex­change en­vi­ron­ment, recorded a $471.1 mil­lion un­der­writ­ing profit in its in­di­vid­ual PPO plans in 2015. That re­sulted in a 17% un­der­writ­ing mar­gin—an­other high mark but still be­low the ACA’s med­i­cal-loss ra­tio that capped prof­its at 20% of pre­mi­ums.

Florida Blue Chief Fi­nan­cial Of­fi­cer Chuck Divita at­trib­uted the mar­gin to sound rates. Many health plans priced their pre­mi­ums well be­low what was ex­pected in or­der to sell more plans—a strat­egy de­ployed by many de­funct ACA co-ops.

But he said Florida Blue did not want to get caught with low rates on an at­trac­tive plan that had a broad provider net­work. “If you don’t get your price close right out of the gate, you’re fight­ing an up­hill bat­tle, and you saw that in a lot of states,” Divita said.

Blue Cross and Blue Shield of North Dakota, which had a 12.1% un­der­writ­ing mar­gin in its in­di­vid­ual busi­ness last year, took the same ap­proach. The com­pany did not at­tempt to un­der­cut com­peti­tors and ended 2015 with al­most 43,000 mem­bers. “We didn’t try to go out with an ag­gres­sive strat­egy,” said Tony Pis­cione, the North Dakota Blues’ vice pres­i­dent of ac­tu­ary. “We had a lot of mar­ket share al­ready.”

Blues com­pa­nies also took dif­fer­ent views on how to ac­count for the ACA’s risk-cor­ri­dor pro­gram, a tem­po­rary mech­a­nism to cush­ion the losses in the first three years.

Sev­eral in­sur­ers as­sumed re­ceiv­ing risk-cor­ri­dor fund­ing when they crafted their 2015 plans. How­ever, the fed­eral gov­ern­ment has only paid out 12.6% of risk-cor­ri­dor re­quests. High­mark, Blue Cross and Blue Shield of North Carolina and Blue Cross and Blue Shield of Min­nesota, all of which suf­fered heavy ACA losses, are su­ing the gov­ern­ment to re­ceive the re­main­ing money.

But other in­sur­ers as­sumed a worst-case sce­nario with that pro­gram—that ei­ther Congress would stymie the fund­ing, which is what hap­pened, or that the fed­eral gov- ern­ment would re­nege on its com­mit­ment.

Blue Cross and Blue Shield of Michi­gan as­sumed it wouldn’t get any risk-cor­ri­dor money and ac­cord­ingly set pre­mi­ums slightly higher than if it as­sumed the money would be avail­able, said Terry Burke, vice pres­i­dent of in­di­vid­ual busi­ness at the Michi­gan Blues. “I think that was a very pru­dent move on our part.” The Michi­gan Blues posted an un­der­writ­ing gain of $177 mil­lion on $1.2 bil­lion of rev­enue from its in­di­vid­ual HMO and PPO plans last year.

Spe­cial en­roll­ment woes

Some states—the pri­mary reg­u­la­tors of in­sur­ance—have unique rules that have af­fected out­comes. For ex­am­ple, Mas­sachusetts merged the in­di­vid­ual and small-group mar­kets in 2007. Blue Cross and Blue Shield of Mas­sachusetts had a slight un­der­writ­ing deficit last year, and the com­pany knows it’s “go­ing to lose money in the merged mar­ket,” Chief Fi­nan­cial Of­fi­cer Allen Maltz said. But last year’s re­sults were still bet­ter than the early years of the ACA. “We went through the grow­ing pains. That was five to seven years ago,” Maltz said. “We’re sta­ble right now. We have a good un­der­stand­ing of the mar­ket and the risk.” Al­most ev­ery Blues in­surer in­ter­viewed for this ar­ti­cle tied some of its in­di­vid­ual-mar­ket chal­lenges with spe­cial en­roll­ment pe­ri­ods, which al­low peo­ple to sign up for cov­er­age out­side of the an­nual win­dow if they move, get mar­ried, have a child or en­counter a few other unique cir­cum­stances. Blue Cross and Blue Shield of South Carolina, which de­clined an in­ter­view re­quest, warned in its an­nual fil­ing that “ad­verse se­lec­tion, guar­an­teed is­sue and lim­ited en­force­ment of open en­roll­ment pe­ri­ods in the ACA in­di­vid­ual mar­ket will pro­duce higher med­i­cal and phar­macy costs.”

The CMS has al­ready taken mea­sures to tighten the en­roll­ment ex­cep­tions. Con­sumer ad­vo­cates worry the changes could cause peo­ple to avoid sign­ing up for cov­er­age. But most plans be­lieve some en­rollees are us­ing spe­cial en­roll­ment pe­ri­ods to game the sys­tem, sign­ing up when they need ex­pen­sive care and drop­ping cov­er­age when they get well. “We need to get peo­ple to sign up dur­ing open en­roll­ment and not sign up dur­ing the spe­cial en­roll­ment pe­riod,” said McDon­ald of HCSC, which saw roughly a quar­ter of its in­di­vid­ual mem­ber­ship en­roll dur­ing the spe­cial pe­ri­ods.

Given all the flaws in the mar­kets, no one is san­guine about the fu­ture of in­di­vid­ual rates—even in states where in­sur­ers per­formed mod­estly well. The fail­ure to per­suade “young in­vin­ci­bles” to sign up for plans could put in­creased pres­sure on the re­main­ing in­sur­ers.

“I hate to ab­so­lutely say we would never leave,” said David An­der­son, CEO of HealthNow New York, the par­ent com­pany of two Blues plans. HealthNow’s in­di­vid­ual un­der­writ­ing mar­gin likely will erode in 2017 as it ab­sorbs some of the high-cost peo­ple who were en­rolled with the failed Health Repub­lic In­sur­ance of New York co-op.

But, he said, “We would find ev­ery way to stay.”

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