Insurers Affected by 2015 Budget Change to Risk Corridors
Who: Insurers and CO-OPs offering Qualified Health Plans (QHPs) providing individual and group products through government exchanges.
When: The FY2015 Omnibus Bill was signed into law December 16, 2014. The law (Public Law 113-235) is effective for fiscal year 2015 which is the period from October 1, 2014 to September 30, 2015.
What: The FY2015 Omnibus law includes a potentially significant change to Risk Corridor payments, one of the three insurance product pricing stabilization components of the ACA. Risk corridor transfer payments are processed through H.H.S and are used to require profitable insurers to share a portion of their profits to others who are unprofitable. The law prohibits the use additional government funds if the transfer funds from profitable carriers to unprofitable carriers are insufficient.
Executive Summary: Health premiums are based on projected claims. Insurers have little experience to project claims for products offered under the ACA, especially with the removal of underwriting and exclusions for pre-existing conditions. It takes a year or more for health claims under ACA plans to occur, be processed, and analyzed. To give insurers time to base premiums on actual paid ACA product claims, the ACA included three “premium stabilization” features for products sold during the transition period from 2014-2016.
1. Risk Adjustment payments, (transfers among insurers based on the relative health of enrollees)
2. Transitional Government Reinsurance Pool, (transfers among insurers based on individual large claims).
3. Risk Corridor payments, (transfer among insurers based on profitability)
The three premium stabilization features allow insurers to keep premiums lower than would otherwise be needed during the startup years 2014-2016. The first two are funded by health plan fees and taxes, so there is no obligation for any additional federal funding.
However, the Risk Corridor funding requires annual budget appropriations, if the “excess profits” from some carriers are insufficient to offset the “excess losses” of other carriers. The first payment under the Risk Corridor process will be in 2015, based on results of 2014 experience. The FY2015 Omnibus law prohibits the use additional government funds if the transfer funds from profitable carriers to unprofitable carriers are insufficient.
Impact of FY2015 Omnibus Bill: H.H.S. believes, that over the three year life of the Risk Corridor, payments will be ‘Budget-neutral” and the FY2015 Omnibus law will at worst delay some payments from one Fiscal Year to another.
However, the FY2015 Omnibus Bill restriction was passed following The House Committee on Oversight and Government Reform study that found, “The insurers and co-ops expect net payments through the risk corridor program of about $725 million in the 2014 plan year. The total taxpayer bailout expected by insurance companies likely approaches $1 billion.”
Actions: Insurers will need to analyze their likely role as a giver or receiver of Risk Corridor payments. Insurers should have their actuaries, brokers, consultants, and lawyers analyze the possible scenarios. Insurers may need to consult with their tax professionals and auditors regarding any delayed or uncertain deferred government payments. In addition, the lack of government funding for a short-fall could have an effect on premiums charged and how aggressively products will be marketed through government exchanges. Individuals or groups insured in government exchanges should be alert to rate increases and consult your agent/broker about options to change carriers.
The information presented and contained within this article was submitted by Ronald E. Bachman, President & CEO of Healthcare Visions and Chairman of the IHC Editorial Advisory Board. This information is general information only, and does not, and is not intended to constitute legal advice. You should consult legal advisors to determine the laws and regulations applicable to your company. Any opinions expressed within this document are solely the opinion of the individual author.