The Trump administration’s move to suspend Affordable Care Act risk-adjustment payments to insurance companies may cause ACA market instability, but Fitch Ratings predicted the issue won’t affect health insurers’ ratings.
Fitch said stopping payments is a credit negative for companies currently owed money. However, major publicly-traded insurers and Blues plans, which usually participate in the ACA marketplace, won’t see deterioration in capital strength.
- Not everyone is as optimistic. A new Commonwealth Fund report said suspending the program adds more uncertainty and may lead to higher premiums and fewer payers in the marketplace.
The ACA’s risk adjustment program helps protect payers from potential losses related to enrolling more at-risk and high-cost members. It requires payers with fewer higher-risk members to pay into a pool, while companies with more higher-risk members get money from the fund to help offset the extra cost.
CMS stopped $10.4 billion worth of payments last week. The agency blamed two conflicting federal court cases on the use of statewide average premiums. CMS said it can’t collect or distribute funds for the payments until the matter is resolved.
Payers spoke out against the decision. The Blue Cross and Blue Shield Association predicted large premium increases and fewer choices in 2019. “CMS should use all legal avenues available to make the payments on schedule and should do so to protect consumers,” BCBSA president and CEO Scott Serota said in a statement.
Though many large payers expected to receive risk-adjustment payments, Fitch said not receiving the money won’t cause them major problems. Also, companies no longer required to make the risk-adjustment payments may see a one-time benefit to earnings and capital.
If the payment program ends permanently, Fitch expects higher premiums and more payers dropping out of the individual and small group markets.
The Commonwealth Fund said states and payers are concerned about how stopping risk-adjustment payments will affect the marketplace. This year could be a repeat of last year, with payers dropping out of the marketplace over the summer and state officials scrambling to fill counties with no payers in the individual market.
But despite Republican efforts to repeal the ACA, a recent Brookings report concluded the individual market is not in any worse shape than in the final days of Barack Obama's presidency. Premiums are higher and fewer payers are in the market, but Brookings said “these conditions are not fundamentally worse.”
Instead, the ACA’s core market remains similar to 2016. That’s despite a number of actions to chip away at the law, including killing the individual mandate penalty, ending cost-sharing reduction payments, expanding association health plans and short-term health plans, cutting ACA marketing campaigns, reducing the open enrollment period and continuously bashing the law.
Another theory is that the ACA market may actually improve in 2019. A recent Robert Wood Johnson Foundation report suggested proposed rate hikes so far are more moderate than in 2018, and no payers have announced exits from the marketplace.
In fact, there are new payer entries. Oscar Health, Bright Health, Medica and Wellmark all expect to expand their ACA plan footprint next year.
The report found payers in the ACA market are seeing “favorable financial results.” That's partly connected to silver loading, which is when an insurer puts all the losses associated with the end of cost-sharing reduction payments on silver plans alone. The Robert Wood Johnson Foundation said silver loading has helped stabilize part of the market.
“It’s possible that, at least in some markets, the marketplace population has become less costly to serve over time. It may be that the market is reaching the end of a multi-year ‘Goldilocks Process,’ characterized by initially too many market participants, then too few, now perhaps closer to an amount that is ‘just right,’ although this remains to be seen,” according to the report.
Most payers will focus on subsidized members. The unsubsidized portion will get more complicated with the end of the individual mandate penalty in 2019 and expansion of short-term and association health plans. All of this points to potentially tighter margins next year, according to the report.