Insurers feeling the heat of health care reform
Since the time the Affordable Care Act was no more than a gleam in President Obama's eye, employers, consumers and insurers have been asking how it will affect them. This year, all four big health insurance companies covering Central Massachusetts made reference to the landmark health care reform law in explaining why they lost money in the first quarter.
And yet, fiveyears after the ACA was enacted, the ultimate effects of its new rules aren't very clear.
Blue Cross Blue Shield of Massachusetts reported a net loss of $41.8 million in the first quarter, while it paid $87 million in taxes and fees related to the ACA. But Allen Maltz, CFO for the state's largest health insurer, pointed out that what the numbers reflect mostly is that those costs must, by law, be accounted for in the first quarter. Later in the year, new revenues come in to cover the expenses.
“So the fact that losses were reported by all of the insurers is not necessarily a harbinger for the whole year,” Maltz said. “We're not concerned or nervous … a little closer to zero would have been better, but we're feeling just fine.”
The insurers were all hit by ACA-related charges last year as well, but by the end of the year, all four reported positive net incomes.
Unlike Blue Cross, other insurers are a bit less sanguine about the financial scene, though not necessarily due to ACA-related fees. R. Scott Walker, CFO of Fallon Health, said reimbursement for its public health care programs, which provide about half of Fallon's revenues, has been “strained” by government cost-cutting efforts. (Fallon reported a $4.2 million net loss in Q1.)
Meanwhile, Walker said, the price of new specialty drugs, particularly some very expensive ones for hepatitis C, are offering great hope for people with serious health problems, but also putting pressure on all insurers' budgets.
“It's a national challenge that we have to wrestle with,” he said. “There is a societal issue with more and more of these specialty drugs on the market.”
Tufts, Fallon and Harvard Pilgrim Health Care say a part of the ACA that's hurting them this year is risk adjustment, a measure intended to equalize the burden of caring for the sickest. The idea is to impose a fee on plans that serve mostly healthy people and use the money to help reduce costs for those that take care of people with the greatest need. Though the details aren't settled yet, in Massachusetts, it looks like this provision benefits Blue Cross at the expense of the other insurers.
“Risk adjustment is complex in general, but I think in ... Massachusetts, it solves a problem we didn't have,” Walker said.
Fallon and other insurers argue that the provision was intended to address an influx of uninsured with serious health problems into insurance markets when the ACA took effect. In Massachusetts, because the state's own reforms had already reduced the number of people without insurance to a minimal level, the insurers say it's unnecessary.
Blue Cross's Maltz said the risk-adjustment provisions do their job in making sure people with preexisting conditions can get insurance. As the law requires, he said, the company passes on risk-adjustment payments to customers when it prices its plans.
“I've heard the wailing … of some of our competitors,” Maltz joked, “But, for one thing, this is something that's been well known. It's not something that's caught anybody by surprise.”
More jumps in premiums?
For employers, of course, the bottom-line question is whether changes in insurance — created by the ACA or not — will affect their premiums. Christopher P. Geehern, executive vice president of marketing and communication at Associated Industries of Massachusetts, said premium increases in the last few years haven't been rising at the startling rates that had been common before that. But he said they're likely to start jumping again before long.
“I think employers are certainly happy for the respite,” he said. “But most of the experts that we rely on seem to believe that upward pressure on rates is going to resume.”
One factor driving up some premiums could be an ACA-mandated change in the combined market serving individuals and small businesses, opening it to businesses with up to 100 employees, rather than 50, as it stands now.
“That's certainly going to create some issues and exacerbate the costs for some employers,” said Eric Linzer, senior vice president of public affairs and operations for the Association of Massachusetts Health Plans.
Linzer said some employers with mostly young, healthy workers may choose to self-insure rather than become part of the newly defined market. That, in turn, would leave an older, sicker population in the risk pool, increasing costs for companies and individuals that remain.
So far, despite the changes taking place in the insurance market, employers don't seem to be seeing sudden jumps in premium costs.
“I'm not hearing directly from members yelling and screaming, 'Oh my God, my rates went up 80 percent,'” said Stuart Loosemore, director of government affairs and public policy for the Worcester Regional Chamber of Commerce.
Loosemore said it's possible employers are seeing rate hikes they're not discussing with the chamber, but other issues may be weighing more heavily.
“I don't know that we're going to know the true impact of this until years from now,” he said. “It just leaves a lot of question marks.”
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