North Carolina’s largest health insurer has applied for reimbursements totaling $362 million from the federal Centers for Medicare and Medicaid Services (CMS) to offset losses on Obamacare plans offered in the individual and small group health insurance marketplaces.
Blue Cross and Blue Shield of North Carolina (BCBSNC) requested more than $147 million in 2014 and $215 million in 2015 through the risk-corridor program of the Affordable Care Act (ACA), according to data CMS released in November 2016.
Katherine Restrepo, a health and human services policy analyst with the John Locke Foundation, says ACA’s risk-corridor program was designed to redistribute earnings from profitable insurers to unprofitable ones.
“Under the risk-corridor payment provision, profits from lower-risk pools, pools that skew healthier, would be transferred to carriers with overwhelmingly high-risk pools, where medical claims outpaced premium revenue,” Restrepo said.
Unprofitable insurers requested more in reimbursements in 2014 and 2015 than profitable insurers paid into the program.
In 2015, a Republican-controlled Congress prohibited CMS from using non-risk-corridor funds to pay insurers in the risk-corridor program. Consequently, CMS has paid insurers much less than what they requested in Obamacare bailouts.
BCBSNC’s 2015 losses on Obamacare plans piles onto its 2014 losses, for which CMS paid BCBSNC $18.6 million, just 12.6 percent of the requested amount. The insurer filed a lawsuit against the federal government in June 2016 to recoup the $130 million balance from 2014.
A federal judge dismissed Illinois insurer Land of Lincoln’s $72.8 million risk-corridor lawsuit against the federal government in November 2016. Among all Obamacare insurers, losses for 2014 and 2015 in the risk-corridor program totaled $8.3 billion.
Out of Dough
Restrepo says BCBSNC and other insurers underestimated the cost of their Obamacare plans.
“Since a lot of insurers suffered hundreds of millions of dollars in losses on their Obamacare lines of business, because many experienced high-than-anticipated risk pools, there simply is not enough money to go around to offset these losses,” Restrepo said.
Chris Conover, a research scholar at Duke University’s Center for Health Policy & Inequalities Research, says BSBSNC’s losses are the result of a perfect storm of regulation and speculation.
“I believe the situation was avoidable, but only in the broadest strategic sense,” Conover said. “This situation did not arise from one simple, avoidable, bureaucratic snafu. Nor is it the result of anything BCBSNC did wrong. From all that I’ve seen, their actuaries priced products honestly based on the letter of the law and subsequent regulations.”
Insurers can avoid incurring similar losses in the future by not basing their business models on the expectation of government bailouts, Conover says.
“If we’re lucky, big corporations might think twice in the future about jumping into bed with Uncle Sam,” Conover said.
Michael McGrady ([email protected]) writes from Colorado Springs, Colorado.
Michael T. Hamilton and Justin Haskins, “To Save Obamacare, the President Plots a Massive Bailout of Health Insurers,” National Review, November 14, 2016.
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