Our healthcare environment is undergoing its own climate change. New insurance companies are entering the market, others are being acquired and a few have had to close their doors right after they opened for business.
Want to better understand the financial side of an unpredictable insurance market? Here are four concepts you should know about:
High utilizers are getting care – Under the Affordable Care Act (ACA), there is the individual mandate where all citizens of the U.S. must have health insurance. With the low penalties in the first couple of years for non-compliance, the young and healthy were not signing up as quickly as those that needed care. With no pre-existing condition exclusions and no lifetime limits, a higher number of people are now getting health care and using the health plan. This led to high loss ratios.
Loss Ratios – We mentioned, above, that loss ratios are high this year, which can contribute to market instability. A loss ratio is the difference between the ratios of premiums paid to an insurance company and the claims settled by the company. The losses are added to adjustment expenses and then divided by total earned premiums. If an insurance company pays $90 in claims for every $100 in collected premiums, then its loss ratio is 90%. Some portion of the $10 must pay operating costs (and what is left is profit).
The Risk Corridor Program – This is a market stabilization program that was intended to reduce the financial risk of health plans operating on the ACA health care exchanges for the first few years of covering a new population with unpredictable health care needs (and to encourage health plans to participate in the program). The premise behind it was by collecting funds from qualified health plan (QHP) insurers with more successful exchange business (excessive premium income relative to claims) they could distribute those funds to less successful insurers (excessive claims relative to premium income). This program essentially limits how much money an insurer can lose or gain on its exchange plans. Many insurers—new, small and large—were literally counting on these funds in their business forecasting. Unfortunately, the program did not operate like originally anticipated. On 10/1/15, Centers for Medicare and Medicaid (CMS) announced they would only be able to pay out 12.6% of the risk corridor and this has caused financial stress on insurers that were counting on a much higher percentage. It is not clear how insurers will be able to collect the $2.5 billion balance. This program expires at the end of 2016. Locally, both Health Republic and Moda Health were impacted by the low percentage payout of The Risk Corridor Program.
The Department of Consumer and Business Services (DCBS) – DCBS is the largest regulatory agency administering state laws and rules to protect consumers and workers in the area of insurance (and a few other areas). The Insurance Division protects Oregonians by ensuring the financial soundness of insurance companies, availability and affordability of insurance and fair treatment of policyholders. In the case of Moda Health, the Insurance Division stepped inside last week to make changes and recommendations to make sure the company can pay claims.
Our Pacific Northwest marketplace continues to have many choices when it comes to health care: Regence Blue Cross Blue Shield, Health Net, LifeWise, PacificSource, Oregon’s Health CO-OP, United Health Care, Moda Health, Kaiser, Providence to name a few. BCI Group is continually monitoring the financial position of the carriers to ensure they are in a position of strength. If you have any questions, please contact us.
When it comes to health care, the only thing that is constant is change.