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Insurers' claims mount against CMS risk corridor program

Health insurers' claims against the Affordable Care Act's risk corridor program continued to rise in 2016, but the companies have received little in the way of actual reimbursements.

The risk corridors were designed to help insurers in the first three years following the creation of state health insurance exchanges, as managed-care companies were unsure who would enroll on its plans. The program was to collect premiums from insurers with lower-than-expected claims and make payments to struggling insurers that participated on the exchanges.

In October 2015, the Centers for Medicare and Medicaid Services announced it would only pay 12.6% of the total amount insurers requested under the 2014 benefit year. Then in September 2016, CMS told insurers that it did not have funds to make payments for the 2015 benefit year and that any amounts collected would be used to support the back payments for the 2014 benefit year. CMS went on to say that the Secretary of Health and Human Services understands that the ACA requires full payment and would explore other sources of funding.

A lack of risk-corridor payments has prompted several insurers to file lawsuits against the federal government seeking payment. A congressional provision in benefit years 2015 and 2016 requiring that the program be budget neutral played a significant role in the payments failing to materialize. However, Speaker of the House Paul Ryan, R-Wis., recently expressed support for the continuation of payments under the risk-corridor program to prevent destabilization in the individual health insurance market, as reported by The Wall Street Journal.

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Health Care Service Corp. a Mutual Legal Reserve Co. has the largest total amount of claims filed against the risk corridor program at roughly $2.1 billion, based on analysis by S&P Global Market Intelligence, but has only received $85.7 million in reimbursement payments. As noted in the insurer's management discussion and analysis section of its 2016 statutory statement, the ACA is having "significant effects" on its financial position and operations.

Two other insurers, Highmark Inc.and Humana Inc., have total unpaid claims against CMS of more than $500 million. Humana stated back in December 2016 that it would write-off the remaining risk-corridor receivables due to a court decision impacting a lawsuit brought by Land of Lincoln Mutual Health Insurance Co. In November 2016, the U.S. Court of Federal Claims dismissed Land of Lincoln's lawsuit, ruling that the risk corridor program did not establish a contractual commitment between insurers and HHS. In February, Humana announced it would exit the exchanges in 2018.

Humana might not be alone in exiting the state-run insurance exchanges in 2018. Anthem Inc. Chairman, President and CEO Joseph Swedish in a fourth-quarter 2016 earnings conference call said the insurer would be "making some very conscious decisions with respect to extracting ourselves," if it does not start to see pricing or product stability. As previously reported by S&P Global Market Intelligence, insurers have been scaling back on the number of state exchanges in which they participate. Anthem, however, has continued to offer plans in 14 states since 2015.

The net admitted assets reported in the chart is reported in note 24E and it equals the asset balance (gross of non-admissions) minus non-admitted amount. The reported net admitted assets equals note 24E(2)c1 – accrued retrospective premium due to the ACA risk corridors liabilities.

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Click here for a downloadable template featuring market share calculations for health insurers, based on the Healthcare Supplement and/or A&H Policy Experience Exhibit from statutory statements.