Highmark–a large health insurer–is suing the federal government over the risk corridors program. The Pennslyvania-based health insurer sold health plans on the federal and state exchanges since the inagural year of the Health Insurance Marketplace. Highmark joins a host of other health insurance companies who are looking to recuperate promised reimbursement payments from the Federal government.
The Affordable Care Act established the risk corridors program. This was an effort to reimburse health insurance companies who sustained losses from participating on the health exchanges. Insurance companies who made money on the health exchanges would pay into a large pool, and the pool would reimburse those health insurance companies who lost money.
As promised, the government paid out sums of money to the insurance companies who lost money on the exchanges. Health insurance companies were shocked to find that the risk corridor payments were a little light. That’s because the risk corridors program only agreed to pay out 12.6 percent of their previous and promised allotment. The United States government had indeed changed the rules.
The Risk Corridors Program and Bad Deals
Highmark was one of the first health insurers to sell health plans in Pennsylvania. It has the greatest number of Obamacare subscribers in the state, but the company sustained losses of nearly $223 million in its first year of selling Obamacare plans. The company will be owed an additional $500 million upon the deadlines to file claims for 2015 losses.
Highmark only received about $30.4 million dollars from the risk corridors program to offset its substantial losses from 2014.
The federal government had high hopes for the risk corridors program. They predicted prosperity and fell short of their expectations. Only a handful of the private insurers profited in 2014, and the grand total of money going into the risk corridor pot was $362 million. Consequently, health insurers coast-to-coast claimed $2.87 Billion in risk corridor payments for their 2014 losses.
Yes, the government did not deliver on its promise to pad the losses of the health insurers.
The risk corridors program could not afford the expense due to a lack of funding.
Community Health Alliance
This fledgling health insurer from Tennessee opened its doors in 2014. The company was one of the many Co-Ops nationwide that offered low-cost health insurance to its members.
The company’s subscribership grew from 1,588 in 2014 to about 27,000 in 2015. Blue Cross Blue Shield rates increased by over thirty percent in 2015, leaving CHA as the most affordable health insurance option the same year. The company was expecting a 100 percent reimbursement from the risk corridors program.
Community health Alliance took out $73 million in loans from the Frederal government. The risk corridor program only paid the company $17 million in reinsurance claims.
The company upheld its obligation to pay out all claims for 2015, but CHA ultimately folded. It joined the 46 percent of Co-Ops who folded in the same year. While other factors were to blame for the demise of Co-Ops nationwide, the meager risk corridor payments certainly did not help to keep the health insurers afloat.
The second risk corridor lawsuit in 2016
Highmark is not the first health insurance carrier to sue the Federal government over risk corridor payments.
In February, the Oregon-based Health Republic Insurance Company filed a class-action lawsuit against the Federal government. The health insurance companies argue that the government owed Health Republic and other health insurers as much as $5 billion in risk corridor payments.
Will the lawsuits be able to help health insurance companies recuperate promised funding?
Consider this excerpt from a recent Wall Street Journal article by Anna Wilde Mathews:
“At the heart of the suit are the details of the risk-corridor program, which was supposed to help limit insurers’ losses, using payments collected from other insurers that did relatively well on the new ACA business.
But later, Highmark’s suit says, federal officials said the program would be “budget neutral,” meaning that it would pay out only as much as it collected.
Language in a 2014 congressional spending bill reinforced the same.”
Will the court uphold the validity of the congressional spending bill? Or will the court rule against the government’s failure to deliver on risk-corridor payment promises?
Highmark remains faithful to the health care exchanges, and a lot of other health insurance companies still continue to offer plans through the health insurance marketplaces. Highmark is sticking around–one of our agents can get you enrolled in a Highmark plan. There are several other attractive health insurance options. Helping you find the perfect plan is our mission!
Philip Strang never envisioned a career in the health insurance industry before October 2015. He fell in love with the industry instantly, and his goal is to make health insurance simple for you. Feel free to write him at p.strang@americanexchange.com. Comments are encouraged!
