North Carolina’s largest health insurer, Blue Cross and Blue Shield, is eligible for nearly $295 million in federal payouts under the Affordable Care Act even as the company is seeking another rate increase in the state.
The payouts, announced last week, come from a deal between the federal government and insurers to make the ACA more palatable to the industry by minimizing its financial risk. The architects of the 2010 insurance law expected some insurers to face significant cost overruns because the law bars insurers from turning away people with preexisting conditions and also caps rates charged to older customers.
Blue Cross qualified for $263.7 million in reinsurance payments and about $31 million in other risk-related payments. The Chapel Hill company’s windfall under the reinsurance program, designed to cover insurance costs for the sickest patients, ranked sixth in the nation in dollar amount, behind Blue Cross organizations in California, Florida, Illinois and Texas.
The N.C. Department of Insurance is authorized to use the federal payouts as a factor in reviewing rate increase requests, but the data was not available when North Carolina’s insurers proposed rate hikes five weeks ago, said agency spokesman Colin Day. Blue Cross is seeking a 25.7 percent average rate increase for its individual policies under the ACA.
“Because the final information was not released until last week, insurers utilized their own estimates of what they believed the results would be,” Day said. “Now that final information is available, insurers may update their rate submissions.”
Blue Cross spokesman Lew Borman said the company accounted for the federal payouts last year, even though the funds are being disbursed now. He said the payouts are based on a formula and won’t affect rates being planned for 2016.
DOI is still reviewing the rate requests.
In February, Blue Cross posted a loss of $50.6 million for 2014, the first year it insured subsidized customers under the ACA, and the company’s first annual loss since 1999.
The federal reinsurance pool covers the costs of individual claims between $45,000 and $250,000. The risk program adjusts for insurers that cover a disproportionate numbers of patients with heart disease, diabetes, cancer, AIDS and other serious conditions.
Some insurers expected significant reinsurance payments and contend the high payouts confirm the need for rate increases, said Cynthia Cox, Associate Director for the Program for the Study of Health Reform and Private Insurance at the Kaiser Family Foundation.
“In other states, part of their justification for a rate increase is the decrease in reinsurance payments in 2016,” Cox said.
The only other insurer to offer ACA health plans in North Carolina in 2014 was Coventry Health Care of the Carolinas. The company is eligible for a $25 million reinsurance payout, but has to pay $29.4 million into the pool because its customers were healthier.
Craig Bauer, Coventry’s chief actuary for the southeast region, said each insurer’s reinsurance amount is largely a reflection of the number of people insured by that carrier. But the figure also reflects other factors, such as reimbursement rates negotiated between the insurer and providers, and regional disease incidence patterns.
Nationwide the reinsurance payments totaled about $8 billion this year and will decrease to $6 billion next year and to $4 billion in the final year of the reinsurance program, said Timothy Jost, health care law professor at Washington & Lee University in Lexington, Va.
“The idea is the people who would show up in the first year would be the sickest people,” Jost said. “North Carolina as one of the larger markets was more successful in bringing people in.”
North Carolina’s enrollment under the ACA was nearly half-a-million people, the fourth-highest in the nation behind Texas, Florida and California.