- About the Bottom Line: Could Less Customers Mean Bigger Profits for Health Insurers
- March 27, 2017
The collapse of efforts to repeal and replace the ACA, or Obamacare, arose out of a floodtide of criticism of the Paul Ryan plan. But among those who stayed on the sidelines and offered little input or blowback? Insurers…
About the Bottom Line: Could Less Customers Mean Bigger Profits for Health Insurers
The House GOP’s embattled health care bill has plenty of detractors: Democrats, hospitals, the American Medical Association and the House Freedom Caucus all oppose it. But the insurance industry is not on that list — even though it stands to lose millions of customers.
One reason the industry has been hanging back: Insurers’ profits are expected to fatten under the bill.
The House Republicans’ replacement plan would likely attract more younger, healthier consumers to the individual market than the Affordable Care Act did, according to Standard & Poor’s, the corporate credit rating firm. The ACA tilted the opposite way, offering more options for older, sicker Americans whose health care claims eroded insurers’ profits.
“Profitability will likely improve, as the replacement plan can result in an improved risk pool in the individual market,” S&P said in a report on the House leadership’s initial plan.
A vote on the GOP “Trumpcare” bill is expected Friday, but by late Thursday it remained unclear whether there were enough votes to pass it. The Trump administration has said if the measure doesn’t pass Friday, it will abandon the effort to replace Obamacare.
Under the current health law, an insurer is allowed to charge a 64-year-old consumer a premium that’s three times what it charges a 21-year-old. The House bill allows insurers to charge older consumers premiums that are five times higher.
That change would reduce premiums for younger consumers but boost them significantly for people in their 50s and 60s – even with tax credits that increase for older people under the GOP plan.
Not all insurers are enthusiastic about what’s in the House bill. Those that are also mainly in the business of managing Medicaid services to enrollees under contract with states — such as Molina Healthcare — oppose the bill because of the expected sharp reductions in Medicaid if the House measure is enacted.
In a new analysis of the House bill that was released Thursday, the Congressional Budget Office predicted 9 million people would fall off Medicaid rolls by 2020 and 14 million by 2026. Overall, 52 million Americans under 65 would be uninsured by 2026 compared with 28 million that year under current law, the CBO said.
America’s Health Insurance Plans (AHIP), which has expressed concerns about the bill but hasn’t taken a formal position for or against the bill, has said the legislation’s provisions would give short-term relief to insurers that have been mostly losing money since the exchanges started in 2014.
Those include giving states $100 billion over 10 years to start high-risk pools and stabilization funds to help insurers deal with higher-risk customers.
One of the most significant positives for insurers in the GOP bill is the elimination of a tax that all insurers paid under the ACA. The industry paid $8 billion in 2014 and is expected to pay $14.3 billion in 2018. Congress temporarily suspended the fee for this year.
Insurers’ opposition to the tax was one of the main reasons why the insurance industry chose not to support the ACA when it was approved in 2010. However, the insurance industry built support for the law by throwing its weight behind a requirement preventing insurers from refusing coverage to consumers with preexisting conditions in exchange for a mandate that most Americans have health coverage.
Although many conservative Republicans favor ending the individual mandate, the GOP bill as originally proposed would instead require that Americans keep continuous health coverage or pay a 30 percent penalty when they do buy private coverage.
Many of the nation’s largest insurers, such as UnitedHealthcare, Cigna and Aetna, were never large players in the health law’s exchanges or they have pulled out citing steep financial losses. For them, the elimination of the health insurer tax makes the GOP bill look appealing, said Ana Gupte, a health analyst with Leerink, an investment bank. “The GOP bill is a net positive” for those insurers, she said.
Even insurers with many customers on ACA policies now will be better off financially in the GOP bill, Gupte said. “They will make a bigger [profit] margin on a smaller number of people,” she said.
Anthem, a larger player in the Obamacare marketplaces, has said the GOP bill would benefit insurers and individuals by ensuring that remaining insurers stay in the market to provide choices for consumers.
Health insurers’ cautious optimism about the bill contrasts with the rest of the health industry. Lobbying groups representing doctors, hospitals and nurses have objected vehemently to the legislation. AHIP spokeswoman Kristine Grow said the group remains concerned about the long term stability of the Medicaid health plan market because the GOP bill would kill the Medicaid expansion and reduce federal Medicaid funding to states. She also said it’s too early to know how insurers’ 2018 premiums would be affected under the GOP bill.
A big uncertainty for insurers is whether the Trump administration will continue to allow a key program under Obamacare that helps low-income individuals with out-of-pocket health costs. House Republicans suspended a lawsuit that claimed the $7 billion federal funding of the program was illegal.
The program’s future is of concern to Dr. J. Mario Molina, CEO of Molina Healthcare, which has 3 million Medicaid members and nearly 1 million customers on Obamacare exchange plans. The Long Beach, Calif.-based company operates in about a dozen states.
But Molina said his biggest concern is the GOP bill will return the country to the broken individual market system in place before 2014.
“The main thing I am worried about is this bill will cause millions of people to lose insurance coverage,” he said.
Regardless of what Congress and the Trump administration decide to do with Medicaid’s federal funding, Molina predicted more states will shift Medicaid recipients into managed care plans to control costs. “In the short term, we will still grow,” he said.
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