Health Plan Weekly

Health Plans on ACA Exchanges May Be Underpaying MLR Rebates

March 30, 2021

Health insurers on the Affordable Care Act (ACA) exchanges are consistently overestimating the amount they spend on enrollee benefits as part of their medical loss ratio (MLR) reporting, resulting in “hundreds of millions of dollars in underpaid policyholder rebates,” according to new research.

The ACA requires health insurers in the individual/small-group markets and large-group markets to spend at least 80% and 85%, respectively, of their premium income on medical care and quality improvement initiatives. If the percentage falls below those thresholds, insurers in those markets must pay a rebate to customers, and rebates have been rising considerably in the last three years, according to the Kaiser Family Foundation.

NOTE: The abstract below is a shortened version of the Health Plan Weekly article “ACA Exchange Insurers Could Be Gaming MLR Rebate System.”

By Leslie Small

Health insurers on the Affordable Care Act (ACA) exchanges are consistently overestimating the amount they spend on enrollee benefits as part of their medical loss ratio (MLR) reporting, resulting in “hundreds of millions of dollars in underpaid policyholder rebates,” according to new research.

The ACA requires health insurers in the individual/small-group markets and large-group markets to spend at least 80% and 85%, respectively, of their premium income on medical care and quality improvement initiatives. If the percentage falls below those thresholds, insurers in those markets must pay a rebate to customers, and rebates have been rising considerably in the last three years, according to the Kaiser Family Foundation.

But according to research that is slated to be published in The Accounting Review, insurers could have been paying far more in rebates. Looking at MLR filings from 2003 through 2014, researchers found that in cases where firms had the incentive to manipulate their reports — such as when they would have to pay out rebates — 63% of firms overestimated claims, compared to 49% of firms with no such incentives. “Thus, we infer that approximately 14 percent of firms with the incentive to manipulate do so,” wrote study authors Evan Eastman of Florida State University, David Eckles of University of Georgia, and Andrew Van Buskirk of Ohio State University.

Katie Keith, an attorney and research professor at Georgetown University’s Center on Health Insurance Reforms, says she is “not really surprised” by the study’s findings. “[With] any of these programs where it pretty much relies on insurer reporting, there’s an incentive for many to game the system,” says Keith, who was not involved in the study. “I’m not saying all of them game the system, but you don’t even just see it in the commercial market, you see it in Medicare Advantage and all these other systems, too.”

Krutika Amin, an associate director for the KFF’s Program on the ACA, says the COVID-19 pandemic’s generally positive impact on insurer finances has already heightened the likelihood that the sector will face increased regulatory scrutiny. “So I think there is definitely a conversation coming up around updating MLR requirements,” she tells AIS Health.

More People May Move to Medicaid, Individual Market Permanently Post-Pandemic

March 25, 2021

Millions of people in the United States have lost their employer-sponsored health insurance as a result of the pandemic and have had to find new sources of coverage. While experts are still working to assess the scale of the fallout, they say it’s very likely that the enrollment mix in the U.S. has changed permanently.

The full extent of employer-based coverage losses tied to the pandemic won’t be known for some time. In a rough estimate, a December 2020 Kaiser Family Foundation (KFF) white paper found that “roughly 2 to 3 million people may have lost employer-based coverage between March and September.”

NOTE: The abstract below is a shortened version of the Health Plan Weekly article “Experts Predict Permanent Coverage Shifts Post-Pandemic.”

By Peter Johnson

Millions of people in the United States have lost their employer-sponsored health insurance as a result of the pandemic and have had to find new sources of coverage. While experts are still working to assess the scale of the fallout, they say it’s very likely that the enrollment mix in the U.S. has changed permanently.

The full extent of employer-based coverage losses tied to the pandemic won’t be known for some time. In a rough estimate, a December 2020 Kaiser Family Foundation (KFF) white paper found that “roughly 2 to 3 million people may have lost employer-based coverage between March and September.”

Some of those people may not return to their previous employer-sponsored plans, Massey Whorley, an associate principal at Avalere Health, explained during a March 17 webinar. “That’s in large part because…as we have made Medicaid more robust, and as we have made the exchanges more affordable, we are going to see more people staying in those forms of coverage than returning to ESI [employer-sponsored insurance].”

Indeed, Medicaid continues to see notable enrollment shifts. Health policy experts generally believe that many of the people who lost commercial insurance have enrolled in Medicaid.

Recent federal actions could also support Medicaid enrollment. The Families First Coronavirus Response Act boosted the Federal Medical Assistance Percentage by 6.2 percentage points from Jan. 1, 2020, through the end of the public health emergency, provided they agree to not reduce Medicaid eligibility during that time.

KFF’s annual Medicaid Budget Survey predicted that Medicaid enrollment would increase 8.2% in 2021 compared to 2020, and be mirrored by an 8.4% year-over-year increase in spending.

Meanwhile, the individual market may also see higher enrollment. Approximately 8.3 million people signed up or were auto-renewed for 2021 plans on HealthCare.gov during the most recent open enrollment period, according to CMS, and sign-ups are continuing due to a federal special enrollment periods (SEP). Experts say that enrollment on the exchanges should expand during the SEP, particularly with the more generous subsidies included in the American Rescue Plan, the $1.9 trillion coronavirus recovery package recently passed by Congress.

However, as Avalere Principal Myra Simon pointed out during the webinar, some possible enrollees may not know they are eligible for either Medicaid or individual market plans, or that premium tax credits are more generous than they were before.

Health Insurers May See Earnings Hit From COVID Vaccine Reimbursement Hike

March 24, 2021

CMS has significantly boosted the amount that Medicare will pay for administering COVID-19 vaccines, a move that appears to be a positive development for health care providers and retail pharmacies but a potential headwind for commercial health insurers.

Previously, the national average Medicare payment rate for administering single-dose vaccines was $28, but CMS on March 15 increased that to $40. For two-dose vaccines, the rate rose from $45 to $80.

NOTE: The abstract below is a shortened version of the Health Plan Weekly article “Medicare’s Pay Increase for COVID Vaccines May Cost Plans.”

By Leslie Small

CMS has significantly boosted the amount that Medicare will pay for administering COVID-19 vaccines, a move that appears to be a positive development for health care providers and retail pharmacies but a potential headwind for commercial health insurers.

Previously, the national average Medicare payment rate for administering single-dose vaccines was $28, but CMS on March 15 increased that to $40. For two-dose vaccines, the rate rose from $45 to $80.

Since the federal government has already purchased large quantities of the three FDA-authorized COVID-19 vaccines and distributed them free of charge to providers, neither public nor private health plans will have to absorb the cost of the vaccines themselves. But federal rules require non-grandfathered individual and group plans to pay both in and out-of-network providers a “reasonable rate” for administering the vaccines that references Medicare’s reimbursement rate as a guideline.

Given the increased Medicare payment rates for COVID vaccine administration, “CMS will expect commercial carriers to continue to ensure that their rates are reasonable in comparison to prevailing market rates,” the agency said in its March 15 press release.

In a March 16 note to investors, Credit Suisse analyst A.J. Rice deemed the heightened Medicare reimbursement rate for administering COVID vaccines a “modest headwind for commercial health plans.” He predicted a larger negative impact on “more heavily concentrated commercial plans” such as Anthem, Inc. and Centene Corp., and a smaller hit for government-focused insurers like Humana Inc. and for diversified firms including Cigna Corp., CVS Health Corp. (which owns Aetna) and UnitedHealth Group.

Health care providers, on the other hand, welcomed CMS’s move. In a statement, American Medical Association President Susan R. Bailey, M.D., wrote that “this has been a trying time for physician practices, and we thank the administration for acknowledging the challenges of practicing medicine during a pandemic.”

Companies with significant retail pharmacy holdings also stand to gain from CMS’s move. Citi analyst Ralph Giacobbe estimated in a March 16 research note that Medicare’s reimbursement increase could boost CVS Health’s earnings per share by approximately 39 cents and Walgreens Boots Alliance’s by about 52 cents.

How Will Subsidy Expansion Impact ACA Marketplaces?

March 23, 2021

For an individual health insurance market that is already hitting its stride, the new pandemic relief legislation’s expansion of Affordable Care Act (ACA) subsidies is yet another positive catalyst that should make the exchanges more attractive to insurers and customers alike, experts tell AIS Health.

Under the American Rescue Plan, which President Joe Biden signed into law on March 11, individuals who already qualified for premium tax credits under the ACA will see more generous financial aid. In addition, people who earn more than 400% of the federal poverty level (FPL) will be eligible for reduced premiums for the first time thanks to a provision that caps marketplace premiums at 8.5% of all enrollees’ income.

NOTE: The abstract below is a shortened version of the Health Plan Weekly article “ACA Subsidy Expansion Will Make Big Impact on Exchanges.”

By Leslie Small

For an individual health insurance market that is already hitting its stride, the new pandemic relief legislation’s expansion of Affordable Care Act (ACA) subsidies is yet another positive catalyst that should make the exchanges more attractive to insurers and customers alike, experts tell AIS Health.

Under the American Rescue Plan, which President Joe Biden signed into law on March 11, individuals who already qualified for premium tax credits under the ACA will see more generous financial aid. In addition, people who earn more than 400% of the federal poverty level (FPL) will be eligible for reduced premiums for the first time thanks to a provision that caps marketplace premiums at 8.5% of all enrollees’ income.

Fritz Busch, an actuary at Milliman, Inc., says the newly expanded ACA subsidies will likely bring even more people into the exchanges than the pandemic-related special enrollment period that started Feb. 15. And, “it’s generally agreed that more membership in the individual market means favorable morbidity,” so actuaries will need to figure out just what the impact of that will be, he adds.

Looking ahead to 2022, not only will the revamped subsidies bring more people into the marketplaces, but they will also likely change how people sort themselves among the different coverage tiers — and how insurers respond, Busch says.

“The higher subsidies go, the more likely it is going to be that someone is eligible for a free plan — particularly bronze plans, so there could be some movement towards bronze because of that,” he explains. Health insurers, then, “will want to make sure that they’re in position for [enrollees] to select their bronze plan as a free plan. If their bronze plans are too expensive, they’re not going to be free anymore.”

“We’ll also have an extensive increase of competition in marketplaces in 2022, ’23 and ’24,” says David Anderson, a research associate at the Duke-Margolis Center for Health Policy. He predicts that more insurers will enter the marketplaces and spread their footprints within states where they already operate.

With that increased competition, which will continue a trend already taking place on the exchanges, “the opportunity for monopoly pricing…is going down dramatically,” according to Anderson.

Blues’ Earnings Reports Highlight Money Returned to Members

March 18, 2021

Although health insurers typically try to emphasize the strength of their financial performance when issuing quarterly and annual earnings reports, the COVID-19 pandemic’s largely positive effect on managed care margins in 2020 has led some companies to downplay their earnings. The trend has become a common thread in publicly traded insurers’ earnings reports and conference calls, but it was particularly visible in two recent press releases from Blue Cross Blue Shield insurers.

Blue Cross Blue Shield of Michigan, in a March 1 press release, stated that it “achieved a small operating margin in 2020 of $120 million, less than one percent of the company’s $30.1 billion in total revenue, based on Generally Accepted Accounting Principles.”

NOTE: The abstract below is a shortened version of the Health Plan Weekly article “Blues’ Earnings Releases Stress Member, Provider Support.”

By Leslie Small

Although health insurers typically try to emphasize the strength of their financial performance when issuing quarterly and annual earnings reports, the COVID-19 pandemic’s largely positive effect on managed care margins in 2020 has led some companies to downplay their earnings. The trend has become a common thread in publicly traded insurers’ earnings reports and conference calls, but it was particularly visible in two recent press releases from Blue Cross Blue Shield insurers.

Blue Cross Blue Shield of Michigan, in a March 1 press release, stated that it “achieved a small operating margin in 2020 of $120 million, less than one percent of the company’s $30.1 billion in total revenue, based on Generally Accepted Accounting Principles.”

The Blues plan also pointed out that it spent a total of $1.3 billion in 2020 on COVID-19 testing and treatment, providing direct premium refunds and rebates for customers, waiving certain member cost-sharing, and advancing payments to health care providers.

Furthermore, due to Blue Cross Blue Shield of Michigan’s “positive financial performance” in 2020, it said it will pay another $85 million to the Michigan Health Endowment Fund, bringing its total contribution to $610 million in funding for “programs protecting Michigan’s most vulnerable residents.”

Blue Cross and Blue Shield of North Carolina struck a similar tone in a March 2 press release detailing its 2020 financial performance. The insurer said that while its membership grew by 1.3% to 3.86 million, its revenues remained largely flat — at $9.9 billion — due to a rate decrease for its Affordable Care Act exchange plans. Also, the carrier’s net income decreased by $234 million year over year, “primarily due to COVID-19 related claims, premium reductions and investments to better serve its members.”

The two Blues insurers’ earnings releases come after a year that proved unexpectedly favorable for the managed care industry, which at times has heightened policymakers’ scrutiny of the sector. As a March 3 market segment report from credit rating firm A.M. Best explained, the industry “reported record underwriting results, net income, and increased capital levels through the third quarter 2020.”

Looking ahead to 2021, however, insurers’ earnings are expected to be “significantly lower,” A.M. Best said. Even so, the firm “believes health insurers’ strengthened levels of risk-adjusted capitalization, combined with favorable liquidity, makes the industry well prepared to face challenges and uncertainties in 2021.”