The Republican party got something it wanted in the budget passed by Congress: a reduction in the amount of funds that will be available to insurers as loss offsets for insurers selling health plans via the public exchanges. But they may have widened a rift between not only the insurance vendors, but their investors as well.
Why the investors? Because Moody's has signaled that the risk corridor fund limits included in the new budget represent a credit negative for those insurers doing business on the public exchanges.
"The $1.1 trillion government spending bill that Congress passed this past weekend includes a provision that weakens the protection provided by the risk corridor program under the Affordable Care Act. The provision is credit negative for health insurers because it risks limiting what the US Department of Health and Human Services can distribute to insurers that incur losses from policies sold on the health insurance exchanges," Moody's said. "With many insurers projecting losses on this business, the provision will reduce the amount of funds that companies expected to receive for polices sold on the exchanges in 2014 and 2015."
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The GOP could be in for flak from health plan consumers as well as a result of the party's insistence on the risk corridor limits. Moody's said: "Additionally, as a result of the limitations, insurance companies are likely to be more conservative in their pricing assumptions for 2016 policies, which will result in higher premiums that will likely discourage sales."
Moody's noted that the U.S. Department of Health and Human Services attempted to work around GOP opposition to risk corridor dollars by identifying other sources of funds besides the primary one: profits from insurers who do a brisk exchange business. But the new budget specifically prohibits the use of other sources of funds.
Based on reported financial data through the end of the third quarter, we expect that payments to the risk corridor program will not be sufficient to fund the amounts due to insurance companies. The effect on most of the larger insurers will not be significant because the exchange business constitutes a small portion of their overall portfolio. Moreover, these companies have been fairly conservative in their assumptions, expecting little or no risk corridor payments.
"However, smaller insurers, especially startups such as Oscar Insurance Corporation (unrated) and nearly two dozen health insurance cooperatives that bet heavily on the ACA exchange business, will not only have to absorb more losses in 2014 and 2015, but will find it more difficult to be price competitive in 2016."
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
