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For insurers, CBO sees more flexibility and instability in GOP's revised health-care bill

  • The larger, publicly traded insurers will be hurt by the AHCA's cuts to Medicaid funding that would result in 14 million people losing coverage.
  • The CBO and the Joint Center on Taxation estimate about 16 percent of the nation's Obamacare enrollees reside in states that would opt out of requirements to offer essential health benefits and allow insurers to charge people with pre-existing conditions more if they lapse in coverage.
  • Investors don't seem alarmed near term, because the Senate does not appear inclined to cut the safety net health program as deeply as the House.
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For health insurers, the Congressional Budget Office's report on the House's revised American Health Care Act presents a mixed bag.

Proposed rules let states opt out of some Obamacare health benefit requirements, and that could make the individual market more attractive for insurers, but not enough to offset the impact of big cuts to Medicaid funding.

The CBO and the Joint Center on Taxation estimate about 16 percent of the nation's Obamacare enrollees reside in states that would opt out of requirements to offer essential health benefits and allow insurers to charge people with pre-existing conditions more if they lapse in coverage.

"From an insurer's point of view, states with waivers provide them a bigger range of options, so they'll have different price points compared to the standardized version (under the ACA)," making them more attractive, said Deep Banerjee, S&P Global credit analyst. "In the states that stay the same, those states might continue to see some issues with participation, which we are seeing today."

CBO analysts predict healthy younger people would see lower premiums in states that opt out, but "the non-group markets in those states would become unstable for people with higher-than-average expected health care costs," because insurers could charge older, sicker enrollees higher rates.

But the House bill also gets rid of the individual mandate, so for insurers there's the risk that they still would not attract enough young people to actually buy health coverage.

"There's nothing in the CBO that suggests that it's going to be easier for insurers to be in the non-group market," said Craig Garthwaite, health care economist at the Kellogg School of Management at Northwestern University. "It becomes very hard to offer any comprehensive insurance in those markets because you're going to attract all the sick people. You can charge them more, but you better hope that you're getting it right."

Garthwaite says the bigger issue near term for insurers in the individual market remains the fate of cost-sharing reduction subsidies, known as CSRs, which help lower out-of-pockets costs for lower-income enrollees. The Trump administration has not committed to funding the subsidies for 2018, which has insurers concerned they'll be left footing the bill.

On Wednesday afternoon, ahead of the CBO report Blue Cross Blue Shield of Kansas City announced it would not offer Obamacare individual plans in Kansas or Missouri next year, a move that will potentially leave 19,000 northeast Missouri residents without an insurer.

"Through 2016, we have lost more than $100 million," Danette Wilson, president and CEO of Blue Cross Blue Shield of Kansas City, said in a statement. "This is unsustainable for our company. We have a responsibility to our members and the greater community to remain stable and secure, and the uncertain direction of this market is a barrier to our continued participation."

For the larger, publicly traded insurers, the biggest impact of the House bill remains the cuts to Medicaid funding that would result in 14 million people losing coverage.

For Anthem, the safety-net program is estimated to represent about a third of revenues in 2017, more than three times its topline exposure to the individual market. For Centene and Molina Health, Medicaid represents more than two-thirds of revenues — while the individual market is in the single digits.

"The impact on Medicaid is fairly drastic," said Banerjee, adding that if reimbursement rates for the program are cut substantially insurers "may exit some Medicaid markets."

Yet, investors don't seem alarmed near term, because the Senate does not appear inclined to cut the safety net health program as deeply as the House. Shares of Anthem, Centene and Molina were up fractionally Thursday morning.

"The new score probably doesn't change the debate much over repeal/replace, but we think it skews negative for the bill's prospects," Evercore ISI analyst Michael Newshel said in a note to clients. "We think the score will continue to complicate the path for Senate Republicans to coalesce around their own version of the bill and then resolve any differences with the House."