Could Less Customers Mean Bigger Profits for Health Insurers?

The failure of efforts to repeal and replace the Affordable Care Act, or Obamacare, resulted from a flood of criticism of Paul Ryan’s plan. But what about those who sat on the sidelines and provided little input or criticism? Insurers… Could fewer customers translate into higher profits for health insurers?

About the Bottom Line: Could Less Customers Mean Bigger Profits for Health Insurers

The House GOP’s beleaguered health-care bill has many critics: It is opposed by Democrats, hospitals, the American Medical Association, and the House Freedom Caucus. However, the insurance industry is not on that list, despite the fact that it stands to lose millions of customers.

One reason the industry has been hesitant is that insurers’ profits are expected to increase as a result of the bill.

According to Standard & Poor’s, the corporate credit rating firm, the House Republicans’ replacement plan would likely attract more younger, healthier consumers to the individual market than the Affordable Care Act did. The ACA went in the opposite direction, providing more options for older, sicker Americans whose health-care claims were eroding insurer 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’s “Trumpcare” bill is scheduled for Friday, but it was unclear late Thursday whether there would be enough votes to pass it. The Trump administration has stated that if the bill does not pass by Friday, the effort to replace Obamacare will be abandoned.

Under current health-care legislation, an insurer may charge a 64-year-old consumer three times the premium it charges a 21-year-old. The House bill allows insurers to charge five times the premium to older customers.

This change would lower premiums for younger consumers while significantly raising them for those in their 50s and 60s, even with tax credits that would increase for older people under the GOP plan.

Not all insurers are thrilled with the House bill’s provisions. Those who primarily manage 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 passed.

The Congressional Budget Office predicted 9 million people would drop out of Medicaid by 2020 and 14 million by 2026 in a new analysis of the House bill released Thursday. According to the CBO, 52 million Americans under the age of 65 would be uninsured by 2026, up from 28 million in that year under current law.

America’s Health Insurance Plans (AHIP), which has expressed concerns about the bill but has not taken a formal position in support or opposition to it, has stated that the legislation’s provisions would provide short-term relief to insurers that have been losing money since the exchanges began in 2014.

These include providing $100 billion over ten years to states to establish high-risk pools and stabilization funds to assist insurers in dealing with higher-risk customers.

The elimination of a tax that all insurers paid under the ACA is one of the most significant benefits for insurers in the GOP bill. In 2014, the industry paid $8 billion and is expected to pay $14.3 billion in 2018. This year, Congress has temporarily suspended the fee.

The insurance industry’s opposition to the tax was one of the primary reasons why it chose not to support the ACA when it was approved in 2010. However, the insurance industry helped to build support for the law by supporting a requirement that insurers not refuse coverage to customers with preexisting conditions in exchange for a mandate that most Americans have health coverage.

Although many conservative Republicans support repealing the individual mandate, the GOP bill as originally proposed would require Americans to maintain continuous health coverage or pay a 30% penalty when purchasing private coverage.

Many of the country’s largest insurers, including UnitedHealthcare, Cigna, and Aetna, were never major players in the health-care exchanges, or they withdrew due to steep financial losses. According to Ana Gupte, a health analyst at Leerink, the elimination of the health insurer tax makes the GOP bill more appealing to them. According to her, “the GOP bill is a net positive” for those insurers.

Even insurers with a large number of ACA customers will benefit financially from the GOP bill, according to Gupte. “They will make a bigger [profit] margin on a smaller number of people,” she said.

Anthem, a larger player in the Obamacare marketplaces, has stated that the GOP bill would benefit both insurers and individuals by ensuring that remaining insurers remain in the market to provide consumers with options.

The cautious optimism of health insurers about the bill contrasts with the rest of the health industry. Lobbying groups representing doctors, hospitals, and nurses have strongly opposed the legislation. According to AHIP spokeswoman Kristine Grow, the group is concerned about the long-term stability of the Medicaid health plan market because the GOP bill would repeal Medicaid expansion and cut federal Medicaid funding to states. She also stated that it is too early to tell how the GOP bill will affect insurers’ 2018 premiums.

A major unknown for insurers is whether the Trump administration will continue to allow a key Obamacare program that assists low-income individuals with out-of-pocket health-care costs. The lawsuit, filed by House Republicans, claimed that the $7 billion in federal funding for the program was illegal.

Dr. J. Mario Molina, CEO of Molina Healthcare, which has 3 million Medicaid members and nearly 1 million customers on Obamacare exchange plans, is concerned about the program’s future. The Long Beach, California-based company has a presence in a number of states.

However, Molina is concerned that the GOP bill will return the country to the broken individual market system that existed prior to 2014.

“The main thing I am worried about is this bill will cause millions of people to lose insurance coverage,” he said.

Whatever Congress and the Trump administration do with Medicaid funding, Molina predicts that more states will shift Medicaid recipients into managed care plans to control costs. “We will continue to grow in the short term,” he said.

Kaiser Health News (KHN) is a national news service covering health policy. It is a program of the Henry J. Kaiser Family Foundation that is editorially independent.

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