Maryland wants a reinsurance program to stabilize the individual market and lower premiums, but one of the exchange’s two remaining insurers fears the state’s application could further destabilize the market, forcing it to raise rates next year and to reconsider its participation in the state.
Kaiser Permanente, which along with CareFirst BlueCross BlueShield is one of two carriers in Maryland’s individual insurance, said the program would direct most of the reinsurance funds to CareFirst, which already receives significant funds through risk adjustment.
“Our concern is in implementing this reinsurance option, it needs to make sure there is not a duplication of a payment,” Kim Horn, Kaiser’s Mid-Atlantic region president, said in an interview.
Kaiser CFO Jon Kunkle first expressed Kaiser’s concerns at a public hearing Thursday for the reinsurance application.
Kaiser currently pays about $80 million in risk adjustment payments in Maryland, almost all of which goes to CareFirst’s PPO product, Horn estimated.
CareFirst said the risk adjustment payments, and eventually the reinsurance program, help allow the insurer to cover some of the sickest patients in the state, who despite being a small percentage of the population make up a significant portion of the claims.
Where reinsurance would help lower premiums by not including some of the costliest claims in rate calculations, risk adjustment accounts for the different amounts of risk insurers take on, Chet Burrell, president and CEO of CareFirst, said in a statement.
“The risk adjustment mechanism tries to fairly equalize the burden of the carriers,” he said. “Generally, CareFirst gets far sicker and costlier members than Kaiser due to our large provider network and statewide coverage. Hence, Kaiser appears to be attempting to limit its own liability, while CareFirst is seeking to keep premiums as low as possible for all Marylanders.”
After 2018’s open enrollment period, Kaiser and CareFirst moved towards a more equal share of the exchange. CareFirst enrolled about 55 percent of the marketplace and Kaiser enrolled about 45 percent.
Under a reinsurance program, insurers receive compensation from the reinsurance pool for excessive claims. In Maryland’s proposed program, Kaiser worries that most of those fund could go towards a high-risk pool of people, such as those covered by CareFirst’s PPO product.
If that happens, Kaiser would not receive much of a benefit from the reinsurance pool and could consider raising rates further to compensate, Horn said. The continued risk adjustment payments could also disincentive any other insurance companies from joining the market.
“To destabilize (the market) even further is something we really need to avoid,” Horn said.
Further destabilization could force the company to take another look at whether it could financially sustain its presence on the exchange.
“We are concerned about the instability that it creates,” Horn said. “We can’t sustain these kinds of losses. It has to be solved or a whole lot of things could happen.”
Still, Kaiser supports reinsurance and believes solutions are possible that would make the market work for everyone.
“The step one is in the submission of the waiver,” Horn said. “We need it to specify that the mechanism that will go into regulation will actually account for the existing federal risk adjustment and the program will be designed so that it (does not allow) this double dipping.”
Kaiser also wants to make sure that insurers have accounted for the risk adjustment payments they will receive before they can utilize reinsurance funds.
The exchange has commissioned Wakely, the independent actuarial firm that has aided the state’s application, to examine the risk adjustment issue. CareFirst and Kaiser had asked that Wakely look into the issue.
The issue with risk adjustment and reinsurance did not just attract the attention of Kaiser. Beth Sammis, president of advocacy group Consumer Health First, wondered whether the funds would be distributed in a way that made rates decline equally for everyone on the exchange.
“There are many that have argued that when you have a reinsurance program and when it is combined with a risk adjustment program that nothing further needs to be done,” she said at Thursday’s hearing. “But we are concerned that that is not the truth and that it is particularly not going to be the case given the level and the scale of this particular program.”
Sammis’ group has asked the exchange to use 2017’s claims data to simulate the reinsurance program and gain a more accurate view of what future years in the reinsurance program could look like.
But while insurers and advocates worry about what the reinsurance program will look like and how it will work, some consumers are just happy the state is trying to take action to curtail the skyrocketing premiums seen in previous years.
Jeff Ratnow, a small business owner, said at the hearing that the Affordable Care Act has enabled him to build his business, but that this year he expected to spend around $30,000 in health care costs for himself and his family.
“When I heard that the state of Maryland was thinking about doing this, I thanked God that I live in progressive state that really cares about the people,” he said. “This will help me grow my small business … I can look at hiring people. I can look at building a better life for other folks as well.”