Evergreen Health Cooperative must pay $24.2 million to its biggest competitor because of an Affordable Care Act program that aims to level the playing field for insurers taking on riskier customers from state health insurance exchanges.
Evergreen, an innovative insurer established under the new law by former Baltimore Health Commissioner Peter Beilenson, is not alone in having to pay for its healthier clients. Kaiser Permanente of the Mid-Atlantic States owes $14.7 million and Aetna will shell out $11.8 million.
CareFirst BlueCross BlueShield, the state's largest insurer, meanwhile, will receive $50.7 million — all but $1 million of the total amount being paid out to companies in Maryland under what's known as the risk adjustment program.
Baltimore-based Evergreen sued the federal government last month over the pending payment, which represents more than a quarter of its $85 million premium revenue in 2015, arguing the program favors large companies that are better able to evaluate their members' health.
While Evergreen said it would be able to make the payment if it loses the case, the charge would take a huge chunk out of its reserves and threatens its long-term solvency.
"It's insane," said Evergreen CEO Beilenson. "It's clearly got to be changed."
Risk adjustment fees, due in August, will sting less for insurers like Kaiser Permanente, a 71-year-old company with a strong reputation. But the charge for its Mid-Atlantic division comes as Kaiser is trying to expand in Maryland and especially the Baltimore area. The insurer described the size of the fee as "a challenge, but one we are managing."
The challenges small and new insurers face under the risk adjustment program are the latest example of how the Affordable Care Act continues to rattle all insurers — large and small — and a reminder of the bumpy path ahead as Obamacare's market-shaking changes settle.
More than half of the 24 co-ops, or consumer-oriented-and-operated plans, launched under the law already have gone out of business and analysts expect hefty risk adjustment charges will run more into the ground. On Tuesday, Connecticut insurance regulators ordered a co-op there to wind down business because it can't afford its $13.4 million risk adjustment fee.
While the co-ops struggle to stay in business, bigger insurers, most notably United Healthcare, are pulling out of states where they lost millions by insuring people through the exchanges.
"The most important thing we need to do for the ACA plans is to get Obamacare to stability," said Robert Laszewski, president of Health Policy and Strategy Associates in Alexandria, Va. "You'll never attract adequate competition in an unstable market — and we're running the competition off right now."
Federal regulators at the Baltimore-based Centers for Medicare and Medicaid Services determine how much insurers will pay or receive by assigning each a risk rating, which factors in their clients' age, gender, medical history and other factors. Risk ratings are compared against the state average, and plans that have healthier-than-average members pay into the program, while those with sicker-than-average and riskier members receive money.
In its lawsuit, Evergreen argues that the process puts small and new companies at a disadvantage because they lack the technical sophistication and the years of medical history to provide as accurate an estimate and, as a result, appear to have healthier members.
CMS has admitted it needs to tweak the program and plans to make changes, such as accounting better for people who are signed up for a plan for only part of the year and using information about prescription medications to determine members' health.
But even with these changes, the risk adjustment program could mean small companies continue to pay out and big ones cash in, said Sabrina Corlette, a senior research professor at the Center on Health Insurance Reforms at Georgetown University's Health Policy Institute.
Large insurers' brand-name reputations and extensive doctor networks may make them inherently more appealing to customers who have health problems and know they will rely heavily on their insurance plan, she said.
Meanwhile, companies like Evergreen and Kaiser, which have smaller doctor networks and less-established brands in Maryland may seem like a better option for young, healthy shoppers, who use insurance sparingly and therefore are more concerned about the monthly premium price than the doctor selection.
Co-ops and other insurers hit by risk adjustment fees need to find a way to work within the system, Corlette said.
"Nobody is going to come in on their white charger to rescue these guys," she said. "They're going to have to figure it out or go under."
The risk adjustment program is just one problem with a flawed co-op program, analysts said. The co-ops were given federal loans for a fraction of the amount it costs to startup an insurance company and expected to become stable enough in three years to begin repaying their loans. They had to build a membership base from scratch, couldn't use their federal funding for marketing and were limited to operating in the individual and small group markets, which are known for being unprofitable for insurers.
"It's death by a thousand cuts," Corlette said. "They've just had everything that could go wrong, go wrong."
Maryland Insurance Commissioner Al Redmer Jr. said his department has been tracking Evergreen's progress and is not yet worried about the company's solvency. What he does worry about, Redmer said, are the bigger implications of a problematic risk adjustment program.
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The program is one of several safeguards the Affordable Care Act put in place to balance risk among insurers. Through another such program, the federal government was supposed to make payments to insurers with exorbitant claims. That program was suspended last year when the government ran out of money for it, leaving insurers who had been counting on payments in the lurch.
The uncertainty these issues and others create doesn't bode well for business, Redmer said.
Insurers, even large ones, are less likely to expand within a market or to new states when they can't be sure their investment will pay off, he said.
Redmer said he thinks the changes CMS has proposed will help, but he worries stability is still too far off.
"The rhetorical question is will all these carriers around the country survive long enough for CMS to fix the problem," he said.
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