Even though the business isn’t profitable, some major insurers likely will “play through the pain” and remain in Obamacare’s marketplaces, financial analysts say.
But they need new government funding and a better way to keep people in Obamacare.
“They are all considering how to get to profitability because for the most part the business is either not profitable or where it should be,” said Pete Costa, senior analyst for Wells Fargo.
Three major insurers, Aetna, Anthem and Cigna, released their financial results over the last week, with all experiencing at least some financial issues with their Obamacare businesses. The move comes a few weeks after UnitedHealthcare announced it lost $720 million last year in Obamacare.
In November, United said it might leave the Obamacare marketplace, sparking questions of whether other insurers would leave.
But Aetna, Anthem, Cigna and Humana say they are committed to Obamacare. Part of the reason is the lucrative opportunity, analysts say.
Anthem, for instance, has a strong focus on getting commercial insurance and is “likely to play through the pain,” said Jennifer Lynch, an analyst with BMO Capital Markets. That pain includes a projected loss of 40 percent of its Obamacare enrollment next year.
Anthem receives a lot of money from the commercial market that includes employer-sponsored insurance. The same goes for the insurance rival Aetna.
“Being able to tap into this individual commercial market would give insurers the opportunity to grow commercial business,” Lynch said.
Obamacare comprises a majority of the individual market, which is for people who don’t get insurance through work.
United, however, has a more diversified portfolio and “has less to lose by leaving [Obamacare],” Lynch said.
While insurers are committed, they still will “try to push through market reforms,” Lynch said.
“One of the problems is that some of the government premium stabilization programs aren’t working as well as they were supposed to,” Costa added.
Obamacare offered three programs to help insurers deal with the uncertainty of a new market.
Some insurers essentially sold plans below cost because they thought they would get federal help, Costa said.
The administration was supposed to pay out insurers if they take on too many sick individuals, but it hasn’t worked out that way.
One of the programs, called risk corridors, pays insurers for high losses and forces insurers to pay the government if profits reach a certain threshold.
But the program became a political hot potato. In 2014, Congress included a provision that forced the program to be revenue neutral, meaning it could only pay out what it took in.
Congress was essentially calling the administration’s bluff, as officials told lawmakers it was intended to be a revenue-neutral program.
Insurers requested $2.9 billion in funding but only received $362 million, about 12 percent of their request.
Two of the stabilization programs, the risk corridors and a reinsurance program, will expire in 2017.
“That means that premium prices have to go up in these products because [insurers] didn’t price well even with the premium stabilization programs,” Costa said.
The latest government spending package also requires the program be revenue neutral.
Funding isn’t the only need.
Insurers complained of people easily signing up for Obamacare year round, not just during open enrollment. That wreaks havoc for insurers as sometimes people sign up and get treatment for a health ailment and quit when they are better.
The administration is trying to address these concerns and recently eliminated six special enrollment periods people can use to sign up year-round.
Administration officials have said that the marketplace is still young, having been in operation only since 2014.
“Consumers are still getting educated and health plans are experimenting with the right product and network designs,” said Andy Slavitt, acting administrator for the Centers for Medicare and Medicaid Services, during a January investor conference. “Even as the market meets today’s needs and signs millions of new consumers up in record numbers, we also pay attention to adjustments that are needed as the marketplace matures.”
But analysts are still concerned about the problem of people leaving whenever they want.
“I don’t know if there is anything they can do with people jumping out,” said Paula Wade, principal analyst with the consulting firm Decision Resources Group.
Part of the problem is that the individual market is different from the employer-based market where an employer provides insurance.
It is much harder for a person to leave at any time because the employer “wouldn’t let them,” Wade said.
You don’t “come in and out of your employer-based plan in the middle of the year, unless you are a new hire,” Costa said.
Costa said Obamacare might morph into a different program unless the administration makes changes.
“I think the program as it is currently structured is going to end up being more of a catastrophic coverage, heavily subsidized insurance pool than what was originally conceived,” he said.
