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Anthem could bolt from Obamacare exchange if subsidies are cut

  • The insurer said it may drop out of state exchanges next year if the uncertainty over funding of cost-sharing reduction subsidies is not resolved in the next month.
  • Anthem's first-quarter profit was well above analyst expectations, helped in part by higher premium rates on its Affordable Care Act exchange plans.
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Anthem, the largest insurer providing individual Obamacare exchange plans, said it may drop out of state exchanges next year, if the uncertainty over funding of cost-sharing reduction subsidies is not resolved in Washington in the next month.

"We plan to file preliminary 2018 rates with the assumption that the cost-sharing reductions will be funded," Anthem Chairman and CEO Joseph Swedish told investors on the company's first-quarter earnings call.

"We are notifying our states that if we do not have certainty that CSRs will be funded for 2018 by early June, we will need to evaluate appropriate adjustments to our filing," Swedish said. Those adjustments could include resubmitting higher rates increases, "or exiting certain individual ACA-compliant markets altogether."

Anthem's first-quarter profit was well above analyst expectations, helped in part by higher premium rates on its Affordable Care Act exchange plans. The health insurer earned an adjusted $4.68 per share, well above the Thomson Reuters estimate of $3.86 per share. On the top line, $22.32 billion in revenue was more than $1 billion higher than analyst expectations, driven by strong enrollment growth across its commercial, Medicaid and Medicare products.

Anthem executives said they were encouraged by some of the moves taken by the Trump administration to stabilize the market, including tighter special enrollment rules.

They said they continue to engage congressional and administration officials in Washington about additional steps that will help increase stability, including funding for high-risk pools and reinsurance to help offset very high-cost patients, as well as the CSR payments.

Health insurers, hospital groups and other health-care industry advocates have been pressing congressional leaders and the Trump administration to fund the so-called CSRs, which reduce out-of-pockets costs for millions of low-income Obamacare enrollees. The insurers front the initial costs, which for 2017 are estimated to be roughly $7 billion. Until now, the government has reimbursed them for those payments.

The administration and congressional leaders have given mixed signals about the fate of CSR funding. Republican congressional leaders, who sued the Obama administration over funding authorization for the CSRs, say they can continue for now. President Donald Trump in recent weeks hinted that continued funding for the subsidies was up for negotiation.

House Speaker Paul Ryan said Republicans are close to reaching consensus on a new health-care reform bill that addresses reducing premium costs, but the new amendment to the American Health Care Act by Rep. Tom MacArthur of New Jersey would not address the cost-sharing subsidies.

"CSRs — we're not doing that," Ryan told reporters at his weekly news conference. "That is not in the appropriation bill, that's something separate that the administration does."

Without clarity soon on the CSRs and the health insurer tax for 2018, Anthem said the industry will have a hard time coming up with rates.

"Before accounting for any other issues, rates could increase by an additional 20 percent or more if CSR subsidies are not funded. The return of the health insurance tax is also expected to increase rates by an additional 3 to 5 percent," said Swedish. "Obviously, this level of additional increase would cause further market instability."

Anthem shares closed up more than 3 percent on Wednesday.