Archives for 2017

There were two tweets that I want to highlight this morning. The first is a case that is awarding an insurance company $200+ million dollars. The second is the former head of Center for Medicare and Medicaid Services (CMS) summarizing some of his off the record discussions with C-level leaders at a variety of insurers. There is a common thread. But let’s look at the tweets first.

Moda wins big: judge rules government owes Moda $214 million https://t.co/62VUr0crTz

— Insurance Today (@2day_Insurance) February 10, 2017

Moda believes it is owed $214 million dollars from 2014 and 2015 risk corridor payments. The Federal government disagreed saying that there was neither a contractual promise to pay the full value of the claim nor was the suit ripe for adjudication yet. Moda lost a lot of money on the Exchanges in 2014 and 2015 and had to pull out of several states because its balance sheet was blowing up when the risk corridor money did not arrive as anticipated. Quite a few other insurers (mainly co-ops) were in the same situation in 2015 and 2016. Eventually, my belief is that the Feds will have to pay.

Well capitalized insurers can wait years to get $100 million dollar payments while using other cash reserves to cover the degradation of the risk corridor account receivable on the balance sheet. However, waiting several years and using other reserves is not feasible for co-ops and other smaller start-ups and new entries to the insurance market. As I explained in October, the co-ops counted on quick payment in full to meet cash reserve requirements…..
In the short run, the insurance markets got significantly less competitive as a dozen insurers folded and several more pulled products because they could not float the federal government another couple of years. This will cost the federal government more money in the short and long term.

In the short term, the effect is directly about the benchmark plan. Anywhere where a closed insurer was the issuer of the second least expensive Silver (the benchmark plan) or the cheapest silver, the Federal government will pay more in Advanced Premium Tax Credits…

So the Rubio rider causes a lot of chaos, does not actually solve the problem it is superficially intended to solve, costs the government more money in the short term as the benchmarks are recalculated upwards, and costs the government more money in the long term as there are fewer insurers and thus less competition. The big winners are Rubio (as he gets to fundraise and preen off of it) and incumbent insurers that have large cash reserves.

Brilliant!

Now let’s look at Andy Slavitt’s tweet on what insurers are thinking about for 2018.

It sounds like the plans will submit #ACA rates for 2018 high to hold place in line. Big increases all from repeal & mandate uncertainty. 9

— Andy Slavitt (@ASlavitt) February 9, 2017

I was never senior enough to be invited on the right floor for these meetings much less actually be in those meetings at my former employer. But if I was a decision maker at a carrier that was thinking about going on Exchange, I would be telling my actuaries to assume the following:

• No individual mandate being effectively enforced
• Active and passive enrollment sabotage efforts such as no advertising, no public officials speaking positively of the law etc.
• Cost Sharing Reduction subsidies may not be available

If those were the assumptions that actuaries are told to project their error bands go up massively.  We go from having three years of decent to good data experience for 2017 to effectively repricing a brand new product where current claims data is far less illuminating than it should be.  And that means very large price increases.  If they are smart and Silver Gap the carriers should be able to choose a fairly healthy on-Exchange subsidized risk pool but the off-Exchange risk pool will death spiral.

If I have actuarial slack in the organization, I would want two sets of rate submissions but the worst case scenario needs to be prepared. And that scenario could be thirty or forty percent rate increases.

So what is the commonality?

Perverted incentives rule.  Chaos causing has effects, costs and benefits.  Clear and coherent incentives would ideally inflict costs on the chaos agents and benefits or at least non-costs on the people who have to clean up the mess.  That is not what we get.  Chaos causing agents think they will benefit from causing chaos in the risk corridor limitations through the means of two stretches of bad headlines for the Exchanges as the co-ops exited the market and rates increased due to lower competition.  Chaos causing agents think they will get one more round of good for them headlines early this summer as scary rate increases are filed.

 

 

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