Two-year commitment needed for CSR stability

At least two years of continuous funding for cost-sharing reduction (CSR) benefits is necessary to stabilize and strengthen the individual health insurance marketplace, according to a coalition of health care and health insurance providers. In a letter to the chair and ranking member of the Senate Committee on Health, Education, Labor, and Pensions, a group including America’s Health Insurance Plans, the American Hospital Association, the American Academy of Family Physicians, the American Medical Association, BlueCross BlueShield Association, the American Benefits Council, and the U.S. Chamber of Commerce requested a firm commitment to CSR payments.

Under Section 1402 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), many individuals enrolling in qualified health plans through the marketplace are eligible for reduced cost sharing based on income. These reductions are guaranteed by the ACA; the federal government is supposed to make CSR payments to insurers offering plans in the marketplace to cover the reduced prices paid by plan enrollees, but the law does not guarantee those payments. The Trump Administration has not yet committed to continuing to make the payments.

In the letter, the providers and insurers explained that nearly 60 percent of enrollees in qualified health plans have CSR benefits, but noted their concern about uncertainty about CSR payment funding. They requested two full years’ funding for the CSR program, and warned that without that certainty, premiums will increase and fewer insurers will participate in the marketplace.

When ACA costs are too high, consumers turn to short-term insurance

When prices for insurance under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) get too high, consumers are more often turning to short-term coverage as a more cost-effective option, according to a report by CBS News.  The monthly premium for a short-term plan is on average about $500 less for a family of three than that of a plan purchased on the ACA’s health insurance exchanges, which makes sort term coverage an attractive option for those who can’t afford ACA coverage.

On average, a family of three will pay a monthly premium of $283 for a short-term plan, which is about $500 less per month than coverage through a major medical plan, according to (non-ACA) online health insurance marketplace eHealth. Before the ACA, eHealth sold about 60,000 short-term policies per year, a number that more than doubled in 2014 and 2015, with approximately 140,000 policies sold over both years.

Lower costs, higher risks

While the cost of short-term plans may be more effective, consumers are making compromises in other areas. Some short-term plans lack coverage for prescription drugs, for example, and other exclude specialized coverage, such as maternity care. Most notably, unlike health insurance under the ACA, short-term policies refuse to cover preexisting conditions. Moreover, consumers must reapply for coverage annually and may be denied if their health care costs are too high—a concept that is also forbidden under the ACA.

“This is exactly the kind of coverage the ACA was designed to get rid of,” said Kaiser Family Foundation Senior Vice President Larry Levitt to the Wall Street Journal (WSJ). Consumer advocates worry that buyers do not understand the limits and risks involved with short-term policies, or that consumers do not realize they may qualify for subsidies that can dramatically reduce the cost of a plan purchased on the ACA marketplace.

Even though short-term plans such as these do not qualify as individual coverage under the ACA, triggering the tax penalty for lack of coverage, the cost of a short-term plan plus the tax penalty may still be less expensive than paying for a marketplace plan. In 2015, an individual who went without coverage for more than three months can expect to pay the higher of a percentage of his or her taxable income or a flat rate, with a maximum penalty of $975 for the 2015 tax year, CBS News reported.

Causing trouble for the ACA business

Short-term plans can put the ACA marketplaces at risk, as they can draw away healthy consumers who are needed to keep the marketplaces running as expected. Then, they add to the costs of ACA plans by buying coverage only when they have health needs. This can “cause some real problems for the market,” said Timothy S. Jost, a professor at Washington and Lee University, to WSJ. Increasingly, insurers, such as Anthem Inc. and UnitedHealth are beginning to sell short-term plans, saying that the plans fill gaps in coverage.

Northeast co-op in precarious financial position after offering big salaries

Community Health Options (CHO), a health co-operative that serves customers in Maine and New Hampshire, is the latest co-op under intense scrutiny after experiencing significant financial difficulties. It was the only co-op on the health insurance marketplaces to show a profit in 2014, but its good fortune disappeared last year when CHO experienced a $31 million loss. A number of co-ops shut down in 2015, demonstrating the difficulty of executing the nonprofit health insurance model. CHO, however, may have only itself to blame after offering huge pay bumps to executives.

Why do co-ops fail?

The co-ops, also known as Consumer Oriented and Operated Plans, were supported by the administration as an alternative to private health insurers. They received funding through the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which Nonprofit Quarterly believed led to many restrictions, such as marketing and advertising, that hampered the organizations’ ability to operate effectively in the market.

Other funding issues compounded the problem. For example, although the Kentucky Health Cooperative outperformed some state exchange competitors and had healthy enrollment, receiving a fraction of the expected risk corridor payment from CMS meant no more business as usual, according to Interim Kentucky Health Cooperative CEO Glenn Jennings. Risk corridor payments were created under the ACA to help insurers handle the costs of new enrollees with long-unmet health needs, who would likely cost more to cover. Insurers were to receive a payment if their operating losses were excessive. Kentucky Health Cooperative sought a $77 million payment, but CMS only covered $9.7 million. The co-op was unable to continue, with the closing announced in October 2015.

Kentucky’s co-op was not the only one hit. As of November 2015, a dozen co-ops had closed or had announced that they would not offer plans in the future. After Kentucky made the announcement, Tennesse’s Community Health Alliance followed suit. ColoradoHealthOp was next decertified from the exchange. In the same month, Oregon’s Health Republic Insurance, South Carolina’s Consumers Choice, Utah’s Arches Health Plan, and Arizona’s Meritus announced that they would cease operations. Consumers Mutual of Michigan held off until November 2 to announce that it was leaving the exchange, and two days later decided to wind down completely.

A big potential blow to Maine, New Hampshire

CHO is an important exchange presence in Maine and New Hampshire. The co-op is the single largest provider of individual health plans in Maine, with 71,500 members. New Hampshire offers a much smaller number of customers, at 12,700, but the co-op is only one of five companies in that state of offer individual ACA plans. It experienced a $31 million loss in December after being the only profitable co-op on the exchanges in 2014. CHO stopped taking new customers in December, and the Maine Bureau of Insurance is going to closely monitor performance on a monthly basis.

CHO had higher enrollment as well as higher claims costs than expected, ostensibly due to the many policyholders that were previously uninsured and had unmet medical needs. Maine customers are projected to see a large increase in premiums in the future to offset these costs. However, claims are not the only reason that the company’s financials were off in last year. Top executives saw their salaries more than doubled in the co-op’s first two years. For example, the combined incomes of the Chief Executive Officer (CEO) and Chief Operating Officer (COO) went from $311,642 to $715,819 between 2012 and 2014. Officials claimed that the CEO initiated a 10 percent reduction in his own salary and that the co-op has cut administrative expenses by $11 million. The CEO has expressed concern that publicizing pay cuts for executives will cause him to lose employees.

Although the company is setting aside $43 million to cover potential losses in 2016, this may not be enough. If the state of Maine determines that the co-op will be unable to properly serve its customers and forces CHO’s closure, consumers will be able to select new coverage under a special enrollment period.