The current federal health insurance “reform” law established several mechanisms to try to ensure that health plans would offer policies on the exchanges. The most important were payments to the plans that basically attempted to make sure they made a profit. Wouldn’t any business love that kind of a guarantee. A report from Mark Farrah Associates analyzes the recent history of these payments. (MFA Associates Report) The payments came in two basic flavors, reinsurance and risk adjustment. The reinsurance plan was designed to protect against unusually high claims costs from an enrollee (like that never happens and isn’t something a health plan is perfectly capable of anticipating and protecting against on its own). This plan was only supposed to run for three years, ending in 2016. The risk adjustment payments transfer money among plans according to the risk status of their enrollees, supposedly protecting against adverse selection. This program is permanent.
Looking at three years of results, Health Care Service Corp., a very large Blue Cross company, received a total of $2.3 billion dollars under the research program, while Anthem, another large Blues company, got $1.9 billion, Humana got $1.3 billion and Aetna got $960 million. All small, underfunded companies which really need this kind of support. These companies were getting $25 to $42.50 per member per month to support being on the exchanges. In terms of risk adjustment, Guidewell, the Florida Blues plan got $1.1 billion over this period, Blue Shield of California got $580 million and United HealthCare, the country’s largest insurer, with over $200 billion in revenue, got $512 million. Guidewell got the largest PMPM payments under this program and also was the most profitable company. Anything seem fishy there?
It is somewhat absurdly ludicrous to me that large, sophisticated health plans need this kind of backstopping. They can do their own actuarial work and figure out what kind of premiums they need to charge to make money. If they screw up, tough luck, that is the market. If they can’t exercise that kind of basic competency, they probably shouldn’t be in this business. These payment arrangements were set up by the last Administration as bribes to ensure the support of the health plans and their lobbyists in getting the reform law passed. The current Administration has indicated uncertainty about continuing them. They shouldn’t be maintained and this market and the health plans participating in it should be forced to stand on their own.