Insurers who may get hit with losses as a result of continuing previously cancelled plans may get some financial assistance from the federal government.
When President Barack Obama gave states the green light to allow insurers to reinstate cancelled health plans in the individual market, many consumers were relieved, but health insurers faced a mess – one that potentially will impact their finances.
[See also: Insurance fix creates uncertainty]
In an effort to aid those health insurers, the Health and Human Services Department is proposing to alter the risk corridor program for 2014 by offering a state-specific percentage adjustment.
Insurers have already priced their 2014 products on the exchanges. Unexpectedly keeping the previously cancelled plans will rework the product mix toward more unhealthy enrollees who may purchase the new plans and increase expected claims costs such that it would lead to unexpected losses, HHS wrote in its proposal, published in the Federal Register.
Under the risk corridor, HHS taps insurers’ profits and losses based on an expected cost amount. Each issuer calculates its allowable costs for profits and administrative expenses. Insurers are then responsible for a certain percent of losses in full and get to keep a certain percent of profit in full, explained Jennifer Kowalski, vice president of Avalere Health. In excess of that, HHS shares in the profits or helps to recoup losses for the issuer.
To be eligible, the insurer must adhere to the 80/20 medical loss ratio (MLR) – 80 percent of premiums must be spent on medical care and activities for healthcare quality and up to 20 percent on administrative and other non-medical related expenses. Certain areas of the risk corridor program are set in statute.
“Where they do have flexibility, they are proposing to increase the allowable profit margin and increase the allowable administrative costs that go into determining what the issuer can claim,” Kowalski said. “In doing that, they achieve the same objective of giving issuers some help in mitigating any unexpected losses.”
The effect on insurers of continuing policies that otherwise would have been cancelled is still uncertain and won’t be known until 2015.
During the first half of 2015, issuers will submit to HHS separate enrollment counts for the 2014 transitional plans and for their qualified health plans. “At that point, they will have a sense of the impact and then make state-by-state adjustments to the risk corridors program,” she said.
“They don’t get paid out until later in 2015. The risk corridor program works as a retrospective look, so it is reconciled to actual costs and not a guess at what costs will be,” Kowalski said.