Illinois: Risk Adjustment challenges Risk Corridor to game of chicken.
2018 MIDTERM ELECTION
Time: D H M S
All last fall I documented the saga of the Risk Corridor Massacre, which helped to wipe out a dozen ACA-created co-ops and put many of the remaining ones (along with some private carriers) on shaky ground.
Earlier this week I noted that one of the remaining co-ops, HealthyCT of Connecticut, is the latest to go belly-up...due in large part to a different program, "Risk Adjustment". The irony in both cases is that both programs were supposed to be designed specifically to help ensure that "little guy startups" such as the co-ops would be protected from dissolution during the unstable first few years of the ACA exchanges. Instead, developments in both programs have served to help destroy them.
As I noted the other day, the Risk Adjustment program seems to be backfiring:
Experienced insurers know how to optimize their risk scores while inexperienced insurers are still groping forward with limited data. Insurers that have only ever operated in the small group and individual market are at a data disadvantage compared to insurers that operate in individual, small group, CHIP, Medicaid, Medicare, and large employer group markets.
...He goes on to provide a couple of nice case studies to demonstrate how a more experienced insurance carrier with lots of historic patient data to work with can effectively "work the system" in a perfectly legal manner, by making seemingly lower-risk patients seem to be much higher risk than they might otherwise appear to be (or, presumably, vice-versa). Since established carriers obviously have a lot more data, personnel, etc. to work with than the brand-new startups, they have a huge sitting advantage on this front. The whole point of the RA program was to try and make sure that the Little Guys didn't get stuck holding the bag...yet the irony is that it now appears that many of them are the ones who'll end up having to pay out to the big, established guys who outhustled them on the Risk Adjustment front. Ouch.
In fairness, the Risk Corridor program was working properly at first; carriers which suffered from excessive losses in 2014 due to massive uncertainty about how to price their policies were supposed to receive about $2.9 billion in RC payments. Unfortunately, due to a deliberate sabotage move enacted by Marco Rubio and his GOP colleagues, funding for the program was cut off at the knees, so only $360 million was actually paid out...just 12.5% of the total owed.
Since the remaining $2.5 billion is still legally owed to various carriers, several of them have already filed lawsuits which they're expected to win pretty easily...but the Dept. of Justice is trying to delay those suits for a couple of years, because while they actually agree that the money is owed, they just don't think it's due quite yet. Unfortunately, that doesn't do any of the dozen liquidated co-ops much good...nor does it help the remaining ones which are holding things together by the skin of their teeth. Being promised $50 million in 2017 doesn't help if you're about to be evicted from your home next week.
Case in point: Land of Lincoln Health of Illinois, where the situation is so dire that the Acting Director of the state Insurance Dept. has actually ordered the co-op not to pay out the money they owe for the Risk Adjustment program until they receive the funds they are owed to them by the Risk Corridor program:
The state of Illinois has tried an unusual maneuver to save a health insurer with 49,000 Illinois policyholders from potential financial failure by blocking it from paying a $31.8 million bill to the federal government.
Illinois Department of Insurance Acting Director Anne Melissa Dowling wrote in a June 30 letter to the federal government that she had ordered Land of Lincoln Health not to pay until it gets what it’s owed by the feds — nearly $73 million — under a separate provision of the Affordable Care Act.
This could be a futile effort, however, because...
...Laszewski said he doubted the action would work because federal law trumps state law.
Chicago-based Land of Lincoln’s financial condition has deteriorated rapidly. The 3-year-old startup lost $90 million in 2015 and more than $17 million through May 31.
The article also rehashes the overview I gave above:
Land of Lincoln owes money in a risk adjustment program under the health care law. The program was meant to balance out the risk if some health insurers’ customers were sicker than other insurers’ customers. Small insurers such as Land of Lincoln have said the program is flawed and favors larger insurers with loyal, if sicker customers.
Land of Lincoln Health filed a lawsuit last month in the U.S. Court of Federal Claims in Washington, claiming the federal government had shortchanged it of risk corridor payments, a temporary provision of the health care law meant to help unprofitable insurers. At least four other insurers have filed similar claims.
Congress stopped the administration of President Barack Obama from funding that program beyond what insurers paid into it, with Sen. Marco Rubio, R-Fla., and other Republicans calling the payments “massive bailouts.”