Health Plan Weekly

If ACA Falls, Some Health Insurers’ Earnings Will Take a Big Hit

December 27, 2018

On Dec. 14, a federal judge sent shockwaves into the health care sector by ruling that the entire Affordable Care Act is unconstitutional. While few legal experts expect the ruling to survive scrutiny by higher-level courts — and note that the law will remain intact as that legal process plays out — industry analysts are nevertheless warning that some insurers would be hit hard if the ACA is struck down.

The long-awaited decision concerns a lawsuit filed by 20 Republican state attorneys general in February, which argued that Congress’ elimination of the tax penalty associated with the individual mandate renders the entire ACA invalid. In his decision, U.S. District Court Judge Reed O’Connor agreed with that argument, going further than the Dept. of Justice’s stance that only the ACA’s protections for people with pre-existing conditions should be struck down.

By Leslie Small

On Dec. 14, a federal judge sent shockwaves into the health care sector by ruling that the entire Affordable Care Act is unconstitutional. While few legal experts expect the ruling to survive scrutiny by higher-level courts — and note that the law will remain intact as that legal process plays out — industry analysts are nevertheless warning that some insurers would be hit hard if the ACA is struck down.

The long-awaited decision concerns a lawsuit filed by 20 Republican state attorneys general in February, which argued that Congress’ elimination of the tax penalty associated with the individual mandate renders the entire ACA invalid. In his decision, U.S. District Court Judge Reed O’Connor agreed with that argument, going further than the Dept. of Justice’s stance that only the ACA’s protections for people with pre-existing conditions should be struck down.

If the higher courts do uphold O’Connor’s decision, “the impact will be significant,” Standard & Poor’s analyst Deep Banerjee wrote in a Dec. 17 report. In the absence of the ACA, some states might try to implement their own health care marketplaces, but without federal funds, both the subsidy-eligible market and the Medicaid expansion market “will see a meaningful increase in uninsured rates,” he noted.

“For health insurers, this would mean lower revenues and earnings from those business segments,” Banerjee said. “Insurers that are heavily concentrated in the individual and Medicaid markets without much diversification from Medicare and employer-based commercial markets would be hit hardest.”

Centene Corp. and Molina Healthcare’s earnings will be “meaningfully exposed” if O’Connor’s ruling is upheld on appeal, Leerink analyst Ana Gupte advised investors on Dec. 17. Both Anthem, Inc. and WellCare Health Plans, Inc. would have 3% earnings exposure if the ACA disappears, Gupte added, while Cigna Corp. has “very low single-digit earnings exposure,” UnitedHealth Group has 1% of its earnings at risk, and Humana Inc. has no exposure.

As for how the suit will ultimately fare, most legal experts “have long felt that the legal arguments advanced by the challengers are weak,” Christopher Condeluci of CC Law & Policy wrote in a Dec. 15 message to clients. “Based on this belief, I think most legal experts — including me — still feel that this legal challenge will fail at some point during the judicial process.”

Children’s Coverage Drops Amid Families’ Fears, Policy Shifts

December 19, 2018

Fearful of deportation for undocumented household members, an increasing number of immigrant families in Texas haven’t re-enrolled their eligible children into government-sponsored health coverage. Other eligible youngsters have never been signed up for any number of reasons, and still others live in “working poor” families with incomes that don’t qualify them for Medicaid or the Children’s Health Insurance Program (CHIP) and yet make it tough to pay family premiums. Some have parents employed by small businesses that don’t offer insurance or offer only single coverage for workers, not their dependents. Even families turning to the Affordable Care Act (ACA) exchange may find subsidies won’t make coverage affordable for their children, too.

By Judy Packer-Tursman

Fearful of deportation for undocumented household members, an increasing number of immigrant families in Texas haven’t re-enrolled their eligible children into government-sponsored health coverage. Other eligible youngsters have never been signed up for any number of reasons, and still others live in “working poor” families with incomes that don’t qualify them for Medicaid or the Children’s Health Insurance Program (CHIP) and yet make it tough to pay family premiums. Some have parents employed by small businesses that don’t offer insurance or offer only single coverage for workers, not their dependents. Even families turning to the Affordable Care Act (ACA) exchange may find subsidies won’t make coverage affordable for their children, too.

That’s how Ken Janda, president and CEO of Community Health Choice, sums up a situation recently gaining national attention amid reports from Georgetown University and elsewhere. The upshot, he says, is about a 7% decline of children enrolled through Medicaid or CHIP in his plan since the end of March 2017, in line with the statewide figure.

The Georgetown report asserts that national policies on immigration and other factors are creating an “unwelcome mat effect” in which:

  • The number of uninsured children in the U.S. increased for the first time in nearly a decade, from a historic low of 4.7% in 2016 to 5% in 2017.
  • Between 2016 and 2017, nine states saw statistically significant increases in their rates of uninsured kids.
  • Three-quarters of the children losing coverage between 2016 and 2017, or 206,000, resided in non-Medicaid expansion states.
  • The percent of uninsured children increased among all income levels between 2016 and 2017, but was highest among children living in or near poverty.

 

Joan Alker, research professor and executive director of the Georgetown Center for Children and Families, says she expects to see another decline in children’s coverage next year. “To see no state making progress suggests to me there are strong national currents at work that led to this unfortunate outcome,” she says.

In Houston, it’s reached a point where, Janda says, “We’re working with immigration lawyers so children know what to do if their parents are picked up [by U.S. Immigration and Customs Enforcement, or ICE, while the children are in school]. That’s how bad it is in Houston right now.”

Amid ‘Sky High’ Interest, Association Plans Face Obstacles

December 12, 2018

Six months after the Trump administration issued final regulations to expand association health plans as an alternative to coverage through Affordable Care Act (ACA) exchanges, AHP sponsorship is slowly moving forward. A national AHP coalition, launched in August, has grown to a diverse array of 22 members of large and small trade associations, including the American Farm Bureau Federation and National Restaurant Association.

By Judy Packer-Tursman

Six months after the Trump administration issued final regulations to expand association health plans as an alternative to coverage through Affordable Care Act (ACA) exchanges, AHP sponsorship is slowly moving forward. A national AHP coalition, launched in August, has grown to a diverse array of 22 members of large and small trade associations, including the American Farm Bureau Federation and National Restaurant Association.

Attorney Christopher Condeluci, principal of CC Law & Policy in Washington, D.C., is running the Coalition to Protect and Promote Association Health Plans. He describes interest in AHPs as “sky high,” though he concedes “take-up has been relatively modest.” He ascribes this partly to some states, given flexibility under the federal regulations, prohibiting carriers from underwriting fully insured large group plans.

Nationwide, Condeluci estimates there are eight or so “anti-AHP” states, including Connecticut, Massachusetts, New York, Oregon and Pennsylvania.

He dismisses critics’ concerns that consumers could end up with skimpy coverage through AHPs, which are exempt from many ACA rules even though they cannot discriminate based on health status.

“We are not like short-term limited duration plans [also promoted by the Trump administration], because we must comply with coverage requirements, and are voluntarily providing essential health benefits,” Condeluci says. “And the reason is, these organizations are membership driven. They’re not able to offer skimpy coverage or skinny plans to their members. If they did, their members would leave, and they wouldn’t attract new members.”

“In theory, if there were an individual market where the premiums were more competitive than the AHP, then there would be no AHP,” Condeluci adds. “If coverage is more affordable and just as comprehensive, then people will go with that.” For this reason, he asserts that everyone will be attracted to AHPs to the same extent, and the market segmentation feared by critics — in which only healthy individuals shift to AHPs and sicker people stay on exchanges — won’t occur, especially among subsidized exchange plan enrollees.

“That doesn’t surprise me, that associations are offering benefits consistent with the small-group market,” says Kevin Lucia, a research professor at Georgetown University Health Policy Institute’s Center on Health Insurance Reforms. “It’s how they rate their members.”

New Waiver Concepts May Prove Problematic for Some Insurers

December 11, 2018

In keeping with its mission of loosening the Affordable Care Act’s rules for the individual insurance market, the Trump administration on Nov. 29 offered up four examples of how states can use Section 1332 of the ACA to accomplish that goal.

If a significant number of states end up embracing the more transformative concepts — like changing how subsidies work — that might make it more challenging for health insurers that sell plans in multiple states’ ACA exchanges, experts tell AIS Health. However, some are skeptical that state uptake will be very high in the first place, so insurers may not have to worry too much.

By Leslie Small

In keeping with its mission of loosening the Affordable Care Act’s rules for the individual insurance market, the Trump administration on Nov. 29 offered up four examples of how states can use Section 1332 of the ACA to accomplish that goal.

If a significant number of states end up embracing the more transformative concepts — like changing how subsidies work — that might make it more challenging for health insurers that sell plans in multiple states’ ACA exchanges, experts tell AIS Health. However, some are skeptical that state uptake will be very high in the first place, so insurers may not have to worry too much.

The four “State Empowerment and Relief Waiver Concepts,” as CMS calls them, are:

Account-based subsidies, in which a state directs public subsidies into an account that individuals can use to pay for health insurance premiums or other health care expenses;

State-specific premium assistance, under which states can create a new, state- administered subsidy program;

Adjusted plan options, which would allow states to provide financial assistance for non-ACA-compliant plans; and

Risk-stabilization strategies, which gives states more flexibility to implement reinsurance programs or high-risk pools.

In Justin Giovannelli’s view, states that adopt the waiver concepts will likely face steep barriers.

The Trump administration’s own discussion paper about the four waiver concepts demonstrates that “there are a ton of operational and policy questions that states are going to have to grapple with” if they want to use the new flexibilities, says Giovannelli, an associate research professor and project director at the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute.

But in the event that a meaningful number of states do actually implement waivers overhauling their individual markets, it will create even more variation among those markets than is seen today, Standard & Poor’s analyst Deep Banerjee tells AIS Health.

“What that means is for an insurance company that’s participating in multiple states, they have to be able to adapt to different guidelines in each of the states, which we think gives a little bit of an edge to local-market insurers compared to national insurers,” he says.

Future of Potential Humana/ Walgreens Tie-Up Is Murky

December 6, 2018

Just days before CVS Health Corp. said it closed its $69 billion acquisition of Aetna Inc., reports emerged that another retail pharmacy giant and health insurer— Walgreen Co. and Humana Inc. — are in preliminary talks to take equity stakes in each other.

By Leslie Small

Just days before CVS Health Corp. said it closed its $69 billion acquisition of Aetna Inc., reports emerged that another retail pharmacy giant and health insurer— Walgreen Co. and Humana Inc. — are in preliminary talks to take equity stakes in each other.

Walgreens and Humana are already collaborating on a pilot project in which the insurer opened senior- focused primary care clinics in two Walgreens stores in the Kansas City, Mo., region. Now the companies are in “wide-ranging” talks about either expanding that venture or taking stakes in each other, according to The Wall Street Journal.

If Humana and Walgreens do decide to establish cross-holdings in each other, it would be “a very interesting and shrewd play,” says Rita Numerof, Ph.D., president and founder of Numerof & Associates.

“We know that a lot of outright M&A doesn’t deliver value at the end of the day,” she says. But taking equity stakes in each other isn’t a true acquisition, “so you don’t have all of the risks and costs associated with bringing [a] business under the umbrella of one that’s very, very different.”

In an note to investors, Leerink analyst Ana Gupte pointed to the upside for Humana. “Equity stakes are a way for the two companies to share economics across the different economic pools across clinical, MA distribution and associated retail pharmacy fills and front store sales, which can drive several hundred million dollars of value for [Humana] annually in EBIT [earnings before interest and taxes].”

But Jefferies analysts wondered if perhaps Walgreens might be the bigger winner, since the pharmacy business model “is under more direct attack from disruptive players than are health plans” and “partnering with [Humana] helps [Walgreens] drive market share.”

Jay Godla, a partner at PwC’s Strategy&, says that there could certainly be synergies produced by Humana and Walgreens buying stakes in each other. But any arrangements that are less than a full merger or acquisition can include issues around commitment, agility, not-so-well aligned goals and objectives, and inability to make quick decisions, he notes.

The talks reportedly going on between Humana and Walgreens “could be a starting point for a long-term future merger,” Godla adds.