A controversy has erupted in Massachusetts over an obscure provision of the federal Affordable Care Act that small health insurers say will force them to write fat checks to support the state’s dominant insurer.
The law requires states to redistribute income among health insurers, so those whose members tend to be healthy will pay into a state-run pool, while insurers saddled with a high proportion of expensive, sick patients receive payment from the pool. The payments will be made for the first time this summer, based on 2014 data.
The Massachusetts Association of Health Plans contends that the state is using flawed data and bad methodology, threatening the futures of smaller insurers while shoring up the market’s behemoth, Blue Cross Blue Shield of Massachusetts.
Blue Cross, which is not a member of the association, counters that the federal requirement is necessary to level the playing field in a market in which insurers can design their plans to attract the healthy while discouraging the sick from joining.
Thomas D. Policelli, chief executive of Minuteman Health, a 9,000-member health plan founded in 2013, said that Massachusetts is carrying out the program unfairly.
“The way the methodology works, it in effect penalizes anybody who’s newer and smaller,” Policelli said. New carriers with new approaches are more likely to attract a young, healthy population, he said. The latest calculations show that Minuteman may have to pay an “astonishing” 25 percent of its premium income into the pool, Policelli said.
“Young, innovative, lower-cost Minuteman is going to subsidize the big, expensive, wealthy Blue Cross,” he said.
Andreana Santangelo, Blue Cross senior vice president and chief actuary, said Blue Cross covers a disproportionate share of sicker, costlier patients, and thus expects to receive a payment to compensate. She noted that the company, with 2.1 million members in Massachusetts, is losing money despite its size.
“We’ve always competed with very formidable competitors,” she said. “We’re all regulated the same.”
The controversy centers on “risk adjustment,” one of several provisions in the Affordable Care Act intended to force insurers to compete based on the value of their services rather than their skill at wooing healthy customers. It applies to insurance plans sold to individuals and small businesses.
The federal law prohibits insurers from rejecting or charging higher premiums to people who are sick, and Massachusetts law has done the same for many years.
But insurers can still manipulate the market by the way they craft benefits. For example, a plan can offer a narrow network of providers that would be unattractive to people who see many doctors, or it can exclude from its preferred drug list medications popular with people who have an expensive illness, such as diabetes. Such plans tend not to appeal to sicker patients.
The “risk adjustment” provision is intended to eliminate the incentive to attract more healthy people, because having a high proportion of healthy subscribers will result in having to make a payment. The law applies to every state, but only Massachusetts is using its own methodology rather than the federal model.
Jean Yang, the former executive director of the Massachusetts Health Connector, said the state needed to take its own path because the state’s health care law established unique insurance programs that affect the market. All the health insurers participated in the decision-making and were “fully on board” with the state’s approach to data collection and analysis, she said, and the program was certified by the federal government.
But in recent months, data simulations gave insurers a glimpse of how much they might wind up paying. Saying the data contain duplications and errors, the Massachusetts Association of Health Plans on Jan. 15 wrote to Governor Charlie Baker and Secretary of Administration and Finance Kristen Lepore urging them to ask the federal government to allow the state to delay the risk adjustment program for a year. Lepore said she had received the letter and “will be reviewing it.”
Robert Kosior, chief financial officer of Health New England, a small Western Massachusetts insurer, said that despite serving a population known to be older and sicker, his company may have to pay. “The results many of the plans are seeing don’t seem to make sense,” Kosior said.
W. Patrick Hughes, president and chief executive of Worcester-based Fallon Community Health Plan, said early calculations show Fallon paying millions into the pool, but that “has nothing to do with the population. It’s the quality of the data.” Hughes said the data appear to exaggerate expenses associated with unhealthy patients while underestimating the costs of healthy ones.
“The risk adjustment is penalizing health plans that have done the most to help members get healthy and stay healthy,” Hughes said.
Under the latest simulations of the data, the nine members of the Massachusetts Association of Health Plans affected by the risk adjustment program all expect to make a payout. In aggregate, those payments are estimated to total $82.5 million this year, said association spokesman Eric Linzer. The bulk of that money, he said, is expected to go to Blue Cross.
“We need to get this data right before we start making a massive transfer of money,” said Lora Pellegrini, president of the health plan group.
Santangelo, the Blue Cross executive, acknowledged that Blue Cross expected to receive a payment, but said the amount can’t be known before summer because all the data have not been analyzed. As of Sept. 30, 2014, Blue Cross was anticipating a $30 million payment. The company had lost $142 million in the first three quarters of 2014.
Brian Rosman, research director for the advocacy group Health Care for All, said his organization opposes delaying the risk adjustment program.
“The answer to the poor data quality is to fix the data,” he said. If the program were delayed, “you would lose a year of the risk adjustments that are meant to make sure that insurers are indifferent to the health status of their members.”