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After two years of operating losses totaling nearly $90 million, the Lewiston-based nonprofit health insurer Community Health Options ended the first quarter of 2017 with a $3.7 million surplus.
But challenges remain, as evidenced by the recent rate filings now under review by Maine’s Bureau of Insurance that saw CHO seeking an average proposed hike of 19.6% in the individual marketplace, with Harvard Pilgrim Health Care seeking the largest increase with an average proposed hike of 39.7% and Anthem Blue Cross Blue Shield with 21.2%.
The three insurers cite political uncertainties surrounding the future of the ACA as a key factor in driving up premium rates for the individual market — most notably, the Trump administration's loosening of the federal government's enforcement of the mandate requiring individuals who aren't insured to sign up for coverage or face a financial penalty.
With the U.S. Senate version of an ACA-replacement bill still a work in progress — and the New York Times reporting on June 15 that Senate Republican leaders plan to bring it to a vote “without a single hearing on their bill and without a formal, open drafting session” — Mainebiz interviewed CHO CEO Kevin Lewis about the challenges health insurers face as they work with hospitals, providers and, in Maine, tens of thousands of previously uninsured people, to provide meaningful and affordable health coverage in a time of deep political divisions over how best to accomplish that goal.
The following is an edited transcript of two face-to-face interviews with Lewis and one conducted by email that took place over the past month. Mainebiz is offering it as a serialized story in the Daily Report this entire week with the goal of providing a deeper look at the restructuring of the health care sector that’s unfolding in Washington, D.C.
Mainebiz: What were the challenges you faced in 2016?
Kevin Lewis: Heading into 2016, we knew the biggest challenge for us would be ending the year with sufficient capital, or surplus, to get us into 2017. Our products were already established during the summer of 2015, as were our rates set many many months earlier — all before we recognized the utilization pattern that we had at the end of 2015 spiked higher than anticipated and was going to carry forward into 2016.
We also knew we had to approach that challenge from the perspective of our mission, which is to partner with our members, businesses and the health care professionals to produce meaningful and affordable plans that result in better health outcomes and lower costs.
MB: At the time you entered 2016, CHO had 58,743 individual policyholders and 16,921 group policy holders in Maine's ACA marketplace, according to your rate filings for that year. That gave you the lion’s share of Maine’s ACA individual marketplace. You also had roughly 10,000 members in New Hampshire’s marketplace.
Having been so successful in capturing a majority of Maine’s individual ACA marketplace, did that end up complicating your problem?
KL: It compounded it, yes. Absolutely.
MB: If you had entered the year with a lower percentage of the market, would that have meant your financial challenges wouldn’t have been so great?
KL: We wouldn’t have been challenged as much in our capital position. But it’s hard to do the ‘what if’ scenarios. Conceivably, we might have fared worse. That’s because even if we had a smaller percentage of the individual marketplace, our risk pool might have been even more acute and our loss ratios even higher. We certainly saw that with other plans in other markets around the country.
But it is true that the achievement of a membership that was higher than we had expected did put pressure on our capital position that we wouldn’t have otherwise had.
MB: Is it fair to say that some of the newly insured population had deferred health needs that now, being covered by insurance, they decided it was time to take care of? And that virtually all the insurers, both in Maine and nationally, experienced higher-than-expected costs in the ACA marketplace, not just CHO, as a result?
KL: Some of the evidence points to this kind of pent-up demand, but there hasn’t been any definitive study on the exact derivation and drivers of utilization over time. It seems to be a combination of needs that were unmet by lack of prior coverage as well as a higher rate of disease within the individual market than was expected.
There were some early reports that identified many of those gaining coverage in Maine through the ACA as being new to coverage. And since we had a majority of the enrollees in Maine’s federal marketplace, it would logically follow that most of our membership was new in terms of health care coverage in general, or in the array of benefits that they otherwise wouldn’t have been able to afford in a plan previously.
MB: You were put under public scrutiny by Maine’s Bureau of Insurance early in 2016, with the requirement of filing monthly reports that were posted on the bureau’s website. At the start of that, Maine’s Insurance Superintendent Eric Cioppa expressed concern and seemed to want to help your company succeed in a very challenging situation. Is that how you saw it?
KL: Yes. The Bureau of Insurance has been extremely professional in how they approached the issues and, as a regulator, they did what they had to do. We welcomed their scrutiny. Our feeling is, if it makes us stronger both monetarily and operationally then certainly — from that perspective — the public scrutiny is essential to building public confidence.
And I would also say it has made us stronger operationally, by necessity. It required us to do things more efficiently and better in order to achieve the results we needed to achieve by the end of 2016. And we’ve done that.
MB: Is it fair to say that nationally many of the big insurance companies were experiencing the same issues in 2016?
KL: Yes. I think that’s right. We were among the first to report — and that was at the end of 2015 — our losses for 2015 and the expected losses in 2016. So, being first, and transparent about our losses, attracted a huge spotlight of attention. Combined with the earlier failure of other co-ops, we also were lumped into that mix as opposed to it being seen as a phenomena of the marketplace.
Another factor that impacted us and other insurers is the failure of some of the premium stabilization programs to work as intended — or, rather, to work as set out in the law.
MB: Are you talking about the risk corridor payment obligation? What’s the status of CHO’s $22.9 million lawsuit against the federal government seeking risk corridor payments your company believes are owed?
KL: That’s for 2015.
MB: Is there an additional sum you’ll be seeking for 2016?
KL: Well, 2016 will be sorted out this summer.
MB: So you and other insurers have a lawsuit against the federal government.
KL: Yes, but it’s individually. There are 20, if not more, different lawsuits. Some have already been decided in the federal claims court.
MB: Where does your lawsuit stand?
KL: We are awaiting a judgment by the court.
MB: Is the legal issue essentially that the payment mechanism under the ACA that was supposed to help mitigate the risk for insurers entering into a new and untested market, ended up being pennies on the dollar compared to what was promised?
KL: Right. There was a reinterpretation by the government of what was laid out in the statute. So, for 2014, that resulted in about 12 cents on the dollar being paid out. They only paid out what they collected. There has been no payment on 2015 risk corridor receivables. But a reading of the law does not support the notion that the government was only obligated to pay out what it took in. The other point of contention is the clear indication supporting the necessity of having an annual payment — instead of paying it on some future date when the government decides to pay it.
So, for the first year, 2014, we actually paid into the program. And it was for 2015 that we have the bulk of our $22.9 million claim.
MB: At the end of 2016, how many of the original 23 CO-OPs created under the ACA were still in operation?
MB: Is that still true now as we finish the first quarter of 2017?
MB: Mid-way through 2016, CHO and the other insurers serving the ACA’s individual marketplace presented double-digit rate hikes for 2017 that were approved by the Maine Bureau of Insurance. Did you have the sense, with higher rates being more in line with actual expenses, that you had turned a corner?
KL: I think we all felt that we had a lot more to work with, given the additional data and understanding of utilization.
At the same time, no one was happy with increasing our rates by 25% in the fourth year. We had kept the rates constant over the first three years, then we increased rates by 25%. So, averaging that out, it just so happens that it’s on par with the medical trend that we’ve observed over time. We had to enter 2017 with a known level of rate adequacy.
But no one is happy with that, because we’re trying to lower the total costs. So we know that we have a lot more work to do.