I’ve seldom, if ever, been so misled by anyone as I was by the president of Community Health Alliance, Jerry Burgess, when I met with him on Oct. 9. I’d sought him out for input on a column heralding the Nov. 1 opening of enrollment for 2016 on the government health care exchange and assessing CHA’s readiness for same.
Burgess assured me that CHA was well prepared to be a major provider of coverage on the exchange in 2016 despite concerns expressed earlier this year by Tennessee Insurance Commissioner Julie Mix McPeak that the fledgling insurance co-op might become overextended by its rapid growth at low rates. In January, McPeak had suspended CHA enrollment for 2015 when it hit the 40,000 mark, up from about 2,000 in 2014. Then, in July, she mandated a 44 percent rate increase for 2016, which was more than CHA was seeking but commensurate with a 36 percent increase on the part of its principal competitor, Blue Cross Blue Shield, which has about 160,000 enrollees in the state.
While Burgess acknowledged that CHA would sustain further losses this year atop the $22 million it lost in 2014, he insisted that these were expected growing pains in a market that was providing coverage to older, sicker people, most of whom were previously uninsured. He predicted that CHA would break even in 2016 with 40,000 enrollees and earn a profit in years thereafter at rates that would stabilize and also enable it to start repaying the $73 million in federal loans that had been invested in its start-up.
I was glad to hear all this because I was partial to our homegrown insurance company, which represented the largest new business launched in Knoxville in several years. With 100 employees in well-paying jobs at its headquarters in the Miller’s Building on Gay Street, CHA has been making a meaningful contribution to the local economy.
I was also supportive of its organization as an enrollee-governed co-op. The Affordable Care Act (aka Obamacare) had provided for the creation of such an entity in every state to serve people signing up for coverage on the act’s signature exchanges where (and only where) those with incomes up to 400 percent of the federal poverty line can get subsidies in the form of tax credits to make their health insurance more affordable. But co-ops only got started in 23 states, and I was pleased that Tennessee was one of them.
Then, on Oct. 14, like a bolt out of the blue, I received a terse email announcing that CHA wouldn’t be enrolling anyone for 2016 and is going out of business at year’s end. Burgess cryptically stated that, “Last week’s announcement of a risk corridor reimbursement of just 12.6 percent cast doubt on the collectibility of over $17 million of risk corridor receivables and led to an unavoidable outcome.”
So what the heck is going on and what on earth are risk corridors?
The highly simplified answer to the latter question is that the corridors are intended to cushion the losses of health plans whose enrollees turn out to be riskier and more costly than a norm, with reimbursements from plans that incur costs lower than the norm. To accomplish this, the federal department of Health and Human Services sets a “target amount” of “allowable costs” for every insurer on every exchange nationally. Plans whose costs run more than 3 percent below the target make payments to HHS, while those whose costs that run more than 3 three percent above get paid a portion of the overage. But unlike other forms of insurance risk adjustment payments that net to zero, for a three-year “transitional period” through 2016, Obamacare allowed for these risk corridor payments to exceed collections.
By 2014, it became apparent that the unexpectedly high risk of enrollees on most exchange plans was going to cost billions. So Congress jumped in at the end of last year and stipulated that the risk corridor provisions be made budget neutral. When the final returns for the year were completed recently, collections of $362 million were only 12.6 percent of insurer claims of $2.87 billion. And on Oct. 1, HHS announced that it would only be paying out the 12.6 percent.
But note that this announcement preceded my meeting with Jerry Burgess by eight days. Also note that in the meantime the co-op in Kentucky, which had been one of the most successful in the nation in terms of market share, announced that it was folding for the same reason, to be followed by the one in Colorado. And all of this was foreshadowed by Standard & Poors, which predicted in May that claimants were unlikely to get more than 10 cents on the dollar.
One has to suspect that there was a considerable amount of gamesmanship or attempted gaming of the system going on in the generation of these claims. CHA’s claim of a $20 million entitlement for a year in which it only had 2,000 enrollees looks particularly suspicious.
By setting their rates low in “transitional” years to gain market share with risk corridor protection, insurers could then jack them up in subsequent years with taxpayers rather than enrollees bearing the additional premium cost.
That’s because of the workings of the premium subsidies, which provide that no one should have to pay more than a specified percentage of their income on a sliding scale that starts at 2.03 percent for those below 133 percent of FPL and goes up to 9.66 percent for those above 300 percent of FPL. The tax credit is the amount by which the premium for a health plan exceeds the income threshold—but not just any plan. In an exchange world where there are a multiplicity of plans in four categories classified as bronze, silver, gold, and platinum, the amount of the tax credit keys to the cost of the second-lowest silver plan offered by any insurer in a state.
Even with rate increases of 44 percent and 36 percent respectively for 2016, CHA and Blue Cross were likely to remain at or near the lowest across Tennessee. With CHA out of the picture, Blue Cross may now be the one to reap the benefit of collecting the additional revenue purely at taxpayer expense. So instead of setting in motion what’s termed a death spiral that often occurs when escalating insurance premiums give rise to increasingly adverse selection, the occult workings of Obamacare can beget a subsidy spiral.
Whether CHA could have gotten the 40,000 enrollees for 2016 that Burgess envisioned is problematic in any event. After hitting that mark before the freeze last January, the number had dwindled to 27,000 in September. And CHA’s mishandling of the freeze has left a bad taste in the mouth of many brokers and advisors on whom insurers depend for referrals.
“They didn’t even tell our applicants that they had been cut off,” gripes Knoxville insurance broker Gary Watson.
“I’m petrified of them,” adds Tatum Allsep, executive director of Music Health Alliance in Nashville.
So maybe it’s good riddance.
Joe Sullivan is the former owner and publisher of Metro Pulse (1992-2003) as well as a longtime columnist covering local politics, education, development, business, and tennis. His new column, Perspectives, covers much of the same terrain.
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