Health and Science

Obamacare insurers get help for high-cost claims

The federal Centers for Medicare and Medicaid Services has said insurers will get compensated for a bigger share of their costs from Obamacare customers with big health bills.

But concerns remain about the financial risk of covering those such people, and with those worries comes the chance that premiums in future years will be significantly higher, even as officials offer insurers some relief.

CMS' announcement came earlier this week, after the agency determined there was more cash available in an Affordable Care Act program designed to limit risk for insurers, since the number of high-cost customers did not use up all of the money. (Tweet This)

But it also comes on the heels of news that many Obamacare customers in major U.S. cities may face double-digit percentage premium hikes next year if their insurers' proposed rates are approved.

Felue Chang who is newly insured under an insurance plan through the Affordable Care Act receives a checkup from Dr. Peria Del Pino-White at the South Broward Community Health Services in Hollywood, Fla.
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"I think it's CMS' intent to make sure we do not continue to see larger increases in the future," said Kurt Wrobel, chief actuary at Geisinger Health Plan in Pennsylvania, and a fellow in the Society of Actuaries.

The government's move relates to one of the so-called 3Rs, a trio of programs built into the ACA that are designed to reduce the potential losses an insurer faces from its Obamacare customers. The 3Rs compensate insurers, at least to a certain degree, when their costs from providing health benefits exceed the amount of money they collect in premiums from customers.

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One of the 3Rs, the transitional reinsurance program, addresses the issue of customers who use particularly costly medical services under their Obamacare plans. Insurers and some self-insured group health plans fund that program by paying $63 for each enrollee.

CMS previously said the reinsurance program would, for 2014 plans, pay an insurer 80 percent of costs from a customer after the first $45,000, with a cap of $250,000. After that, the costs would be entirely the responsibility of the insurer's plan.

This week, CMS said contributions to the program were more than the total requests for payments from the program. As a result, the government "expects to collect approximately $9.7 billion in reinsurance contributions" before November, with $8.7 billion collected so far, CMS said.

100 percent coverage, up to a point

That means the program will pay 100 percent of all the eligible costs for 2014 claims—that is, all of the costs for a customer between $45,000 and $250,000.

Officials declined CNBC's request for an interview about the decision, but noted "the reinsurance program helps promote premium stabilization in the individual market."

The insurance industry trade group, America's Health Insurance Plans, echoed that line in its own response.

"This will ensure health plans can address the needs of enrollees managing multiple chronic conditions while providing important premium stability for consumers," AHIP spokeswoman Clare Krusing said.

CNBC update: Obamacare costs
CNBC update: Obamacare costs

But a health insurance consultant said that future rates won't be affected, even if the added reinsurance money is a windfall for insurers this year.

"It's a nice little extra payment to the carriers for what happened last year, but doesn't change the 2016 outlook or their perspective on what they need to charge in the coming year," said Robert Laszewski, president of Health Policy and Strategy Associates in Alexandria, Virginia.

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"Since carriers set their rates for what costs they prospectively think will occur, the latest big 2016 rate increases will not be impacted by this," Laszewski said.

He noted that the range of costs the reinsurance program will cover diminishes in 2016, the last year the program will be in effect.

The expiration of the reinsurance program that year as well as the second of the 3Rs—the risk corridor program—has some insurers worried. After those two programs go away, the only one remaining will be the risk adjustment program, which involves insurers with customers predominantly at lower risk of health problems transferring money to insurers with high-risk customers.

Just one 'R' means more risk

"Right now, we have substantial protections," said Wrobel, the Geisinger chief actuary. But in 2017, "It's a completely different game, because we have only one of the 3Rs," he said.

"Our big concern ... is that our membership has consistent premium increases from year to year," Wrobel said. "That's going to be where the real challenge is."

But if premiums are increased more dramatically, as a number of insurers have proposed for 2016, there's a risk that some healthy customers will opt not to enroll in those plans.That would leave them with costlier, less healthy customers.

"If you look at some of the premium increases, there is a potential for deterioration of the risk pool," he said.

Wrobel raised another concern, about the timing of risk adjustment payments to insurers, which he recently wrote about in the Morning Consult.

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The payments to and from insurers under the risk adjustment program for the 2014 plan year are due to be announced June 30—well after most insurers had to calculate their proposed premiums for 2016.

"We're flying blind," Wrobel said. "We still don't have clarity on 2014 and our true performance."

In his article, Wrobel wrote, "Depending on the circumstance for each plan, the risk adjustment information released on June 30 could be critical in developing accurate rates for 2016."

He also wrote that the information about payments released that day could affect how regulators review the proposed rates, "and result in significant changes to the originally submitted rates."

Wrobel said the disparity in timing between when insurers are supposed to file proposed rates for the coming year, and when the risk adjustment payments for the prior year are released, will continue unless CMS does something about it.

He noted that insurers will, in the first half of 2016, have to propose rates for 2017 knowing the reinsurance and risk corridor programs won't be in effect, and with data on risk adjustment payments only as recent as 2014.

"The risk pool could change substantially between these contract years," he wrote. As a result,"many health plans will be facing very substantial pricing risk, which will be especially challenging for smaller plans," Wrobel wrote.