Everyone's hedging their bets in the wake of legal challenges to the subsidies available to some of those insured through HealthCare.gov.
According to a variety of media sources, from Forbes to CNBC to Inside Health Policy, several major carriers who sold policies through the portal last year lobbied the Obama administration to gain a protective clause in contracts for 2015 sales. The clause would allow them to opt out of plans containing federal tax credits, or premium subsidies, if legal challenges outlawed them.
While this looks good on the surface, Moody's, whose business is weighing risks and rewards in the marketplace, says the protection might offer considerable less security.
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"The termination provision seemingly allows insurers to limit their risk if at some point during 2015 federal subsidies are no longer available. However, because the provision is subject to applicable state and federal laws, the benefit to the insurers is limited because it's unlikely insurers would be allowed to cancel polices already sold," Moody's said in a report on the matter.
"At question in all these [legal challenges to the credits] is the legality of subsidies for polices purchased on the federal exchange based on the wording in [PPACA], which states that federal premium tax credits (subsidies) are available to individuals who purchase insurance policies on a state-operated exchange," Moody's said. "If the Supreme Court decides to hear the case, its decision would likely be announced in mid-2015, well after the open enrollment period that begins 15 November 2014 and ends 15 February 2015."
This means the insurers already will be insuring millions of folks who've gotten the subsidy. They would then have to uninsured them, which, Moody's thinks, is fraught with problems. Chief among them: If subsidies go away, which individuals will the insurers retain as customers?
"Assuming that the percentage of renewing individuals and new purchasers that qualify for subsidies remains in the 80 percent-90 percent range, the loss of this financial assistance in the middle of the year would likely result in a majority of these policies lapsing," Moody's said.
"Under this scenario, we would expect the unlapsed policies and any future exchange sales to comprise a less healthy population because only those who most need insurance coverage would continue paying for an unsubsidized health plan. In this event, the added contract wording would appear to protect insurers from the small percentage of individuals who qualify to purchase an exchange policy after the open enrollment period as a result of a qualifying event. However, insurers would still bear the risk for those polices already sold where the individual continues to pay the full premium."
So, from Moody's viewpoint, the insurers will have fewer policies out there, and they will be covering a less healthy group than they were before. Moody's points out that insurers like WellPoint and Health Net will probably fare better because most of their policies are in New York and California, where subsidies aren't an issue. But for others like Humana, Aetna, Cigna and Centene—the other big players on the federal exchange market—their Moody's ratings going forward could be a matter of concern.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
