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Blue Cross calls losses on claims for 2015 a 'punch in the stomach'

Blue Cross calls losses on claims for 2015 a 'punch in the stomach'

AFFORDABLE CARE ACT

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Blue Cross Blue Shield of Nebraska lost $31 million last year because of high claims from individual Affordable Care Act policies and because of a shortfall in expected federal support.

The Omaha-based insurer, which provides health care coverage for 670,000 people, will take steps to return to its usual break-even status, although it might take two or three years, said Jerry Byers, chief risk officer.

"We have to make it balance, but this was a financial punch in the stomach," Byers told The World-Herald.

On Blue Cross' 38,000 individual insurance policies that comply with the ACA, claims swamped the premiums by $64 million, partly offset by $11 million in gain from group insurance plans. The result was a $53 million loss on insurance operations, partly offset by investment gains.

"We're not a for-profit company," Byers said. "But we're not for losses, either. We have a $53 million hole we need to close ... You can't lose money every year."

Much of that insurance loss was supposed to be offset by payments from the federal "risk corridor program," intended to stabilize the individual policy business in 2014, 2015 and 2016 while insurers learned how claims would roll in under the new law, known as Obamacare.

Instead, Congress funded only 12.5 percent of the program, Byers said. If it had been fully funded, Blue Cross Nebraska would have ended 2015 with a $17.3 million pretax gain; instead, it had a pretax loss of $24 million.

And because of accounting rules, Blue Cross also had to pay income taxes of $7 million, raising the total loss to $31 million, compared with a $5.4 million gain in 2014. That's a record loss except for 2009, when Blue Cross had a onetime cost for a planned claims system upgrade.

Nationally, some other insurance companies reported similar losses, and executives have raised questions about the viability of Affordable Care Act-style health insurance.

The law has come under steady fire from opponents since it was enacted in 2010. Some elected officials blame the shortfall in the risk corridor program on political opposition to the Affordable Care Act, or ACA, a centerpiece of President Barack Obama's presidency.

Byers said Blue Cross intends to continue selling the individual ACA-compliant policies, both directly and on the online marketplace that offers tax credits to subsidize monthly premiums. The subsidies, based on income, let more people afford health insurance.

Mark Bertolini, chairman and chief executive of Aetna, said in a conference call last month that the individual ACA business, sold under the Coventry Health brand in Nebraska, "remained unprofitable in 2015, and we continue to have serious concerns about the sustainability of the public exchanges."

He said the company is working with the Department of Health and Human Services, which oversees the ACA, and Congress "to set this program on a more sustainable path and achieve the underlying goal of making health care more affordable and accessible."

The Department of Health and Human Services said last week that 20 million people, including more than 6 million previously uninsured young adults, have gained health insurance coverage since the Affordable Care Act was enacted in 2010.

That includes young people staying on their parents' policies longer and people who previously couldn't get insurance because of pre-existing health conditions.

Wellmark Health Plan, the Blue Cross affiliate for Iowa and South Dakota, said it broke even on its ACA policies in 2015 but lost money on them in 2014, spending $1.28 for health care and other expenses for each dollar of premium collected.

Wellmark has sold individual ACA policies since 2014 but not on the online marketplace. Wellmark plans to offer the policies on the marketplace in 2017 mainly because its members have said they want access to the subsidies.

Blue Cross of Nebraska spent $1.43 for every dollar of premium collected in 2015.

The Associated Press reported that insurance company losses around the country threaten to turn the ACA into a money-losing venture and erode the industry's support for the federal program.

The nation's largest health insurer, UnitedHealth Group Inc., said it could lose as much as $475 million on the individual business this year and may not participate in 2017. A dozen nonprofit insurance cooperatives, including Co-Oportunity Health in Iowa and Nebraska, have shut down mostly because of the risk corridor program's shortfall.

If insurers raise rates to protect their earnings, more customers — especially young, healthy people — could drop their coverage altogether, preferring to pay the law's tax penalty instead.

More insurer defections would lead to fewer choices on the marketplaces and could eventually undermine the law, provided the next president wants to keep it.

On the other hand, enrollment in ACA plans is growing and appears to be getting younger in some markets, a crucial factor for stability. Insurers also are learning more about their new customers and adjusting their coverage to do better financially.

"Sometimes I think of (the marketplaces) as a little campfire that's going to grow, but right now it needs a little more oxygen or kindling," said Katherine Hempstead, director of health insurance coverage programs for the Robert Wood Johnson Foundation, a nonpartisan organization that has assisted state governments on ACA insurance expansions.

Part of the problem, Wellmark said, is people who sign up for insurance knowing that they will have expensive health claims and then cancel their policies once their treatment is over. The law guarantees coverage. Last year 53 Wellmark clients filed $1.35 million in claims and then canceled their policies.

Byers, the Blue Cross Nebraska executive, said it's too early to say whether 2016 will be a losing year, too, since only about a month's claims have arrived. But the premiums set for 2016 were based on receiving money from the risk corridor program, which won't arrive, and there's no evidence that claims are slowing down.

"We can't look at price as the only lever to try to solve the problem," Byers said. "We need to look at expense management and claim management, but to close a gap of that magnitude, premium increases obviously have to be part of the equation."

Rate increases for the individual policies won't affect group policies that cover most people through their employers, Byers said, because each line of business is considered separate for rate-setting purposes.

Claims management doesn't mean denying more claims, he said. "It's about making sure claims occur at the right place and the right times," such as at a primary care doctor's office instead of an emergency room.

Even with the loss this year, he said, Blue Cross Nebraska is "still a financially stable and strong insurance company."

Blue Cross had reserves of about $390 million at the end of 2015. Byers said that may seem like a lot of money, but the company takes in $1.6 billion in premiums every year, intending to pay out all that money on claims. That means reserves equal only about three months' worth of claims.

"We don't want people to be worried that something like what happened to Co-Oportunity Health could ever happen to us," Byers said. "The sky isn't falling."

This report includes material from the Associated Press.

Contact the writer: 402-444-1080, steve.jordon@owh.com twitter.com/buffettOWH

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