Premera to return 64% of their $390 million windfall to their enrollees

I should note up front that despite the snarky headline, this is actually good news on the whole, and Premera does deserve some credit for it since part of the $250 million they refer to below is voluntary on their part.

Premera Blue Cross, the sole carrier offering ACA exchange individual market policies throughout the entire state of Alaska, and one of the major carriers on the indy market in Washington State, posted this press release today:

Premera Announces $250 Million Investment In Customers and Community

Mountlake Terrace, Wash. — (March 12, 2018) — Premera Blue Cross, a leading health plan in the Pacific Northwest, today announced $250 million in investments over five years across Washington and Alaska to help stabilize the individual market, improve access to care in rural areas and support local communities in their efforts to address the behavioral health issues impacting their residents.

"Over five years". That breaks out to around $50 million per year. Still a lot of money, mind you, just important to keep in mind.

Premera also announced it has notified Washington and Alaska state regulators that it remains committed to serving customers in the individual market in 2019. The company pledged to help ensure continued stability of the Alaska market as well as guaranteed that no one in Washington will be left without at least one health insurance choice in the individual market in 2019.

Good. This is a direct contradiction one of the concerns Aisling McDonough, David Anderson and I each just wrote about (in Alaska, at least).

These investments are made possible because of recent changes to the U.S. corporate tax system resulting in a one-time-only refund for the company.

This is a bit more complicated than it sounds; see below.

...Premera will focus its customer and community investments to address three key areas:

  • Customers and market stability, including investments to benefit our customers such as ensuring continued stability of the Washington and Alaska individual markets and a guarantee that all counties in Washington will have at least one health insurance choice. The tax savings are expected to trigger premium rebates for individual and small group customers under the medical loss ratio provision of the Affordable Care Act. Premera also expects to return nearly $10 million in taxes charged to large group customers in 2018.

Again, I'm not bashing Premera here; they're not trying to hide/mask the ACA's Medical Loss Ratio rule. I just think it's important to stress one of the ACA's most important but least-known provisions. Whether they're happy about rebating a bunch of excess profits or not is irrelevant; they're required to do so legally.

I don't know what the exact rebate amount they're required to pay back is, and that will be spread out over a 5-year period (not to mention that the MLR rule works on a 3-year rotating average formula anyway), but it sounds like they're estimating this portion of their "investment" at perhaps $30 million or so per year?

  • Improved access to health care in rural areas, including initiatives to attract and support health care providers in rural areas as well as offering enhanced telemedicine and tele-psychiatry programs.

Yup, those are good things, especially in a huge, tough-terrain, low-population state like Alaska.

  • Behavioral health, including a nearly $40 million commitment over five years to support efforts across Washington and Alaska to address a wide variety of behavioral health issues such as addiction and adverse childhood experiences, with a specific focus on how these issues impact homelessness.

Again, this is a good thing. I presume most of it relates to the opioid crisis and related issues.

These are all good things, but I'm a bit amused at the one thing that Premera's press release doesn't mention:

Premera learned in the past few months that it would receive $390 million as a one-time refund as part of the tax cut. The company hasn’t decided how to spend the remaining $140 million of the refund. That’s in addition to a lowering of the federal corporate tax rate from 35 percent to 21 percent.

Yup, they got a fat windfall out of the blue and are giving most of it back...partly because they're required to do so, partly because, well, they do seem to be doing the right thing in general here. As for the remaining $140 million...I'm not sure how to feel about that.

Many companies are using the tax break to increase shareholder dividends or buy back stock. Premera is a nonprofit corporation and the only major health insurer headquartered in Washington. So it decided to spend $250 million of the refund on improving health care in Washington and Alaska.

“We’re very different from a for-profit company,” said Steve Kipp, vice president of corporate communications. “We don’t have to worry about shareholders, we don’t have to worry the stock price or dividends and those types of things. We wanted to give that amount away because we felt it was consistent with our mission.”

The company will also be awarding its employees with a one-time, $1,500 bonus. The company employs 2,600 at its campus in Mountlake Terrace.

It's actually a little more complicated than it sounds, though:

Premera, along with other health insurers, were allowed to gather tax credits after a federal tax reform package in 1986, said Mike Kreidler, Washington’s insurance commissioner.

Premera never used those tax credits over the years, but, with this most recent tax legislation, the company was required to cash them in, bringing the sudden windfall, he said.

“I think it’s what many of us can choose to do when we get a windfall financially to look around and say, ‘How can we make the system better?’” Kreidler said. “I think they have a real opportunity to enhance their position in the state of Washington going forward with the investments they choose to make.”

Here's Kreidler's statement on the announcement; sounds like he's pretty happy:

OLYMPIA, Wash. – Washington state Insurance Commissioner Mike Kreidler said Premera Blue Cross of Washington (Premera) should use the bulk of the $390 million tax benefit it announced today to provide enhanced choice and lower costs for its policyholders in Washington’s health insurance market.

According to Premera’s 2017 annual statement, the company will receive previously accumulated tax benefits totaling $390 million. This is due to a change made under the Federal Tax Cut and Jobs Act that requires all Blue Cross Blue Shield companies to claim any previously unused accumulated tax credits. Additional tax changes, including a change to the corporate tax rate, may impact Premera and other insurers at a later date. 

“I expect that Premera will live up to its commitment to help stabilize Washington state’s individual health insurance market by using this tax benefit to bolster services and keep premiums as low as possible for consumers,” Kreidler said. 

“I welcome their plan to help stabilize the market in our state,” Kreidler added. “I also welcome Premera’s commitment made to me earlier this year to offer health plans in counties in 2019 that might not have any other insurer. I will closely review any premium proposals by Premera and other health insurers for 2019 to determine if they are taking appropriate action to keep costs for consumers as low as possible. I’m confident that Premera will use this tax benefit to help the people of the state of Washington by enhancing their capabilities to improve access and affordability of health insurance in our state – especially in the rural areas.”