The Chicago-based parent company of Blue Cross Blue Shield of Texas lost $866 million in the retail marketplace in 2015, an amount that would’ve been nearly double that had it not anticipated a steep drop the year before.
The Health Care Services Corporation set aside $657 million in premium deficiency reserves in 2014, an amount that would help the company offset the demand for claims that far outpaced what it brought in through premiums. Kenneth Avner, the company’s chief financial officer, said that HCSC would have incurred a $1.5 billion loss in its retail business alone had it not reserved that money in 2014.
“Without that, 2014 would’ve looked a lot better and 2015 would’ve looked a lot worse,” he said.
HCSC owns Blue Cross Blue Shield insurance plans in Texas, Oklahoma, New Mexico, Illinois, and Montana. It saw more than 1.3 million customers on and off the exchanges, which make up its defined retail market. UnitedHealthcare, which has eyed leaving the marketplace altogether, has enrolled just over 650,000.
Companywide, it posted a $220 million loss for 2015 across all sectors, the vast majority of which was related to the Affordable Care Act. Financial information pertaining to individual states will not be available until April 1. The company reported a $932 million gain in its group plans, an amount in line with trends for the past five years. Its business for government plans lost $347 million, which Avner said the company anticipated. The biggest hit was in the retail market, which includes the federal exchanges. The company paid out $1.22 for every $1 it brought in. Since 2014, HCSC has lost more than $2 billion in that sphere, Avner said.
He argued that this was tied to the uncertainty of pricing for President Obama’s healthcare reform law, which mandates that insurance plans submit their prices in April well before enrollment begins. There was a seven-month gap between that time and the enrollment period, which began in November 2014 and ended last February. And when the customers came calling, they were sicker and needed procedures to a degree that the company did not fully anticipate. Too, the Obama administration allowed noncompliant plans to be “grandmothered” in: “When the president got in the Rose Garden and on the Thanksgiving weekend to say that if you like your plan you can keep it, he’s doing that at the end of November. We filed all of our administrative systems in April.” The Centers for Medicare and Medicaid Services recently extended that policy through the end of 2017.
“There was a sharp increase in the total cost of care because we found the market as a whole was less healthy than we predicted and anticipated compared to 2014,” said Joel Farran, a divisional vice president of strategy and corporate relations.
But a cushion written into the law also vanished in that time. The so-called risk corridor payments were meant to help stabilize the marketplace in case the population was sicker and had a higher utilization than the insurers had priced for. Under that program, which was set to last from 2014 to 2016, insurance companies paid into a pool once their profits peaked above a certain threshold. That money then was passed down to the plans that incurred losses below a certain amount. Ideally, this would stabilize the risk and motivate companies to participate in the exchanges.
But the hit to insurers was so strong across the industry that the corridor program developed a shortfall in just its second year. As such, insurance companies got a mere 12.6 cents on the dollar—peanuts—and Congress blocked further payments to unfunded programs inside the Affordable Care Act.
“The risk corridor program was supposed to protect insurers because we were being asked to enter a completely new market and they didn’t know what was going to happen,” Avner said. “The government used the knowledge that there was a risk program to entice us to enter that market, to encourage us to do certain things.”
Reinsurance, another provision written into the law, was funded through a fee on all policyholders and helped offset catastrophic claims. HCSC’s financial statement says it brought in $984 million through these payments. The company has taken other steps to combat the losses. It has joined a number of larger insurers in no longer offering commission to brokers for selling exchange plans, an effort to help control the risk pool.
It decided last year to stop offering the broad PPO plans on the exchanges and also increased rates on many of its offerings. This hasn’t gone over well with all of its states. HCSC pulled its plans from the New Mexico marketplace after insurance regulators balked at approving a 53 percent rate hike.
“You can look at a number, like, 3 percent seems like a reasonable increase, but that 3 percent could be tacked on an unreasonable rate,” he said. “You could have something that sounds totally unreasonable at 30 percent on a reasonable rate. The market is intended to give the consumer the option to shop, and until you put all the products side to side and let the consumer make the decision. Talking just about rate increases does not tell the whole story.”
HCSC now believes it has a good handle on what to expect in 2016. It did not commit any money to premium deficiency reserves for the upcoming year. Dan McCoy, chief medical officer for Blue Cross Blue Shield of Texas, says the state’s chapter is working to include providers who employ value-based care processes in the narrower networks to help lower costs.
“We discontinued the PPO last year based on our previous experiences with the management of these complex conditions through HMOs. It offers better care coordination and, at the same time, it helps direct a product that’s more stable over the long term,” McCoy said. “Part of our work is to incorporate as many of these providers who are participating in value based care programs.”