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N.H. Health Insurance Startup Blames ACA for Rate Increases

Valley News Staff Writer
Published: 8/6/2016 11:25:20 PM
Modified: 8/6/2016 11:26:13 PM
Lebanon — Disparities in the proposed 2017 premium hikes projected by health insurers that sell individual policies in New Hampshire were startling — and not a little confusing.

The anticipated increases ranged from a little over 1 percent to nearly 60 percent, according to preliminary filings from April that were made public last week by the federal Marketplace, the website where New Hampshire residents shop for coverage required by the Affordable Care Act.

Anthem Blue Cross Blue Shield, the state’s largest health insurance company, projected a 5.6 percent increase in premiums for its individual policies sold on the Marketplace.

The biggest increases — all double-digit percentages — came from two nonprofit cooperatives set up under provisions of the ACA intended to promote competition in a young market: Minuteman Health Inc. of Boston and Maine-based Community Health Options.

Behind those double-digit rate increases lay a little-noticed tale of unintended consequences and unexpected complexity that began with passage in 2010 of the ACA, and the development of government-sponsored markets for health insurance.

The ACA, with a mandate requiring most taxpayers to certify that they have health insurance coverage, created a need for the online markets. They were intended to serve as health insurance supermarkets for people without coverage through their employers or from government programs like Medicare or Medicaid.

Some states, including Vermont, set up their own markets. New Hampshire and a majority of states chose to send shoppers to the Marketplace, a new website set up by the federal government.

In New Hampshire, according to the state Insurance Department, nearly 92,000 people were covered in July by individual policies sold through the Marketplace, at About 42,000 of those covered were former participants in the state’s Medicaid program who received premium assistance payments through the state.

Most private health insurance remains tied to employment. In New Hampshire in 2014, a majority of the 820,000 residents covered by private policies got them on the job, according to a report issued by the state Insurance Department in November.

Public interest in the ACA exchanges focused on the expense and startup woes of some of the new websites (are you listening, Vermont?) and on the new market’s role in helping to reduce the number of people without health insurance.

In New Hampshire, about 94,000 residents, or 7 percent of the population, remained uninsured in 2014, the most recent year for which such data has been compiled by the Kaiser Family Foundation, a nonprofit health policy analyst. The uninsured rate was 6 percent in Vermont and 10 percent nationwide.

Those issues, along with legal battles and the changes to market structures and rules, have occupied center stage during the opening acts of health care reform, ACA-style.

Meanwhile, the birth of the nonprofit cooperatives was a mainly offstage event that attracted little attention, especially given the convoluted origin story of a sector mainly comprising small startups.

The impulse to set up co-ops can be traced back to what was a disappointment to some advocates of reform: the new law’s failure to end the role of health insurance companies as middlemen between consumers and providers. A proposal to create a government insurance company — the so-called public option — to compete with the private insurers that were positioned to dominate the new market was a political nonstarter. Instead, the law sought to foster competition by providing financial support for the launch of nonprofit co-ops.

In New Hampshire, two co-ops began offering individual policies through the Marketplace in 2015, which was the new market’s second year of operation.

For the nonprofit co-ops, as for many of the reforms brought into the world by the ACA, federal money served as a midwife. For example, Minuteman’s Massachusetts launch was backed with $91 million in federal financing, including a $12.8 million no-interest startup loan (raised to $15 million the next year, when Minuteman entered the New Hampshire market), and a $75.7 million, 0.34 percent interest loan to ensure its solvency.

Federal financing in hand, Minuteman pursued a strategy in which it “excludes high-priced and inefficient hospital systems from its network and instead directs its members’ care to low-cost, high-quality health care providers,” according to a court filing by the company. Minuteman covered 8,300 people in New Hampshire in 2015 and 16,400 this year, according to an April news release.

Community Health Options lagged. It had only 3,500 New Hampshire Marketplace customers in July. In December the company announced plans to stop selling individual policies there and in its home state of Maine due to “higher than expected claims costs” and enrollment growth. Chief Executive Kevin Lewis did not reply to messages seeking a comment.

Minuteman has encountered its own challenges, as was evident when the Marketplace made public Minuteman’s projections of eye-popping premium hikes for its plans ranging from 18 percent to 60 percent. In a lawsuit filed last week, Minuteman blamed federal overseers of health care reform.

At issue in Minuteman’s lawsuit, which was filed July 29 in U.S. District Court in Boston, is a so-called risk adjustment rule written and enforced by the U.S. Centers for Medicare and Medicaid Services and its parent, the U.S. Health and Human Services Department. That rule is intended to level the playing field among competitors in the private health insurance market.

The rule was included in the new law with the aim of preventing insurers from profiting from covering younger and healthier younger people. It redistributes revenue among insurance market participants based on a formula devised by CMS.

But Minuteman says the CMS formula is “arbitrary and capricious” and penalized the company for its success in cutting costs and its focus on selling less-expensive policies. The feds “went rogue in developing and implementing a methodology that guts Congressional intent,” according to the Minuteman lawsuit.

A CMS spokesman said the agency was “unable to comment on pending litigation.” In October, a CMS fact sheet said: “The risk adjustment program protects consumers’ access to a range of robust coverage options by reducing the incentive for insurance companies to seek only to insure healthy individuals.”

But the program missed its target, according to the lawsuit: “Minuteman does not have lower premiums because it has healthier members.”

Minuteman, a small company which covers 25,000 people in only two states, paid a $16 million assessment, or $1,200 a member, for 2015, according to the lawsuit. In New Hampshire alone, Minuteman says it was forced to pay to its competitors $10.5 million, or more than 40 percent of its premium revenue, as an assessment for that year.

In April, Minuteman estimated that the big assessments would require it to raise the average monthly premium on its individual New Hampshire policies 45 percent, to $398 in 2017 from $274 in 2016. “If the Risk Adjustment program were working properly, we would likely be filing for rate decreases,” Keith Ledoux, the company’s vice president of sales and retention, said recently.

A subsequent filing by Minuteman proposes “materially lower rates than our preliminary filing,” Ledoux said. The proposed rates are still being reviewed by the New Hampshire Insurance Department and the final rates will be made public later in the year, the company said.

Danielle Barrick, a department spokeswoman, said the proposed rates were being reviewed and the department would issue its recommendations by Aug. 25. The open season for buying 2017 health insurance on the Marketplace begins Nov. 1 and ends Jan. 31.

Implementing the originally announced premium hikes seemingly would hurt the competitive position of Minuteman which, according to its lawsuit, in 2015 had the cheapest Marketplace policies in New Hampshire. For policies in the bronze category, which have the lowest premiums but less coverage, the lawsuit says the monthly premium was $188 from Minuteman, $224 for Anthem Inc.’s Blue Cross Blue Shield of New Hampshire unit, $238 for Harvard Pilgrim, $260 for Community Health Options and nearly $400 for Assurant, which has since exited the market.

Anthem, which was the only health insurance company that sold individual Marketplace policies to New Hampshire residents during 2014, the first year of the new market’s operation, remains the biggest seller, with about 30,000 people covered in July.

Anthem spokesman Colin Manning declined to disclose additional details of the proposed premium hikes but said that “several factors such as an increased use of medical services, added costs of drugs and medical therapies have put upward pressure on rates.”

Harvard Pilgrim, the second largest seller, with about 19,000 people covered in two networks, projected preliminary 2017 average rate hikes of 4.3 percent and 6.7 percent. Ambetter, an insurance plan that covers about 20,000 people, mostly former Medicaid recipients, projected a 1.4 percent rate hike.

Blue Cross Blue Shield of Vermont, a nonprofit not owned by Anthem, which sells most of the individual policies through Vermont Health Connect, the state’s online market, is seeking approval for an average 8.2 percent increase in its 2017 premiums. That would raise the average monthly premium on such policies to $463.

For low and some middle-income purchasers, the premiums on policies sold through the Marketplace and other ACA-mandated websites are partially offset by tax credits

The New Hampshire hikes are part of a broader trend of premium increases to offset operating deficits. The nation’s five largest health insurance companies all reported financial losses from selling individual policies on the ACA-created markets during 2016.

Anthem Chief Financial Officer John Gallina, citing higher than expected demand and spending on kidney, lung and heart diseases and diabetes, said in a July 27 call with investors that Anthem, the nation’s second-largest health insurer, expected to incur “mid single-digit operating margin losses” in ACA markets this year. The company would incorporate the lessons of 2016 claims increases in its 2017 pricing assumptions and be “focused on returning to profitability in 2017,” he said.

In recent months, Anthem executives affirmed the company’s intention to remain in the ACA markets, as well as to fight an effort by the U.S. Justice Department to block the company’s $54 billion bid to acquire Cigna, the industry’s fifth-largest company.

The deal would create a market giant in the Granite State. In 2014, Anthem’s 36 percent and Cigna’s 24 percent shares of the overall market made the partners in the proposed merger the insurers of three out of five New Hampshire residents with non-government policies. Cigna does not sell individual policies for New Hampshire on the Marketplace.

The antitrust lawsuit alleges that an Anthem-Cigna merger would reduce competition in various health insurance markets including the large-group employer market in the Upper Valley as well as in five other regions of New Hampshire and 29 other metropolitan markets in 12 other states.

The two companies compete in each of those markets, where Anthem flexes the muscles of its Blue Cross Blue Shield brand and low reimbursement rates and Cigna counters with its own low rates, strong customer service, wellness program innovations and collaborative relationships with providers, the Justice Department lawsuit says.

The Justice Department complaint cites a 2015 Anthem strategy document in which it characterizes itself as “the dominant carrier in New Hampshire” and emphasizes its focus on competing with Cigna. The complaint also cites a Cigna executive who said that same year that 40 percent of Cigna’s new business in New Hampshire and two other New England states had been wrested from Anthem.

In a recent conference call with investors, Anthem Chief Executive Joe Swedish defended the Cigna deal, which he said would “benefit 33 million uninsured Americans … through expanded and improved access, affordability and quality” in health care and “help stabilize pricing” in ACA markets.

Minuteman’s lawsuit offers its own vivid portrayal of the New Hampshire market. The lawsuit describes a pre-ACA health insurance market in which New Hampshire consumers “suffered at the hands of market dominant insurance companies.” Facing little or no competition, Anthem’s “monopolistic market share drove consumer premium prices to exorbitant levels,” according to Minuteman.

Manning, the Anthem spokesman, declined to comment on the Minuteman lawsuit and its descriptions of Anthem’s role in the New Hampshire market.

The lawsuit also alleges that in Massachusetts Anthem used its market power to “pay a handful of brand name hospitals disproportionately high prices for their services, while many other superb facilities receive artificially depressed rates.” That prompted Tufts Medical Center and other providers to launch Minuteman, the lawsuits says.

The risk adjustment assessment has its own origin story. It was created to eliminate the financial advantage that would otherwise have been enjoyed by insurance companies that attracted healthier consumers and thus had lower expenditures to cover their medical care.

But because the assessment was improperly designed and implemented, it ended up penalizing Minuteman for cutting its administrative and care costs and for serving customers who bought plans with lower premium and coverage levels, Minuteman’s lawsuit alleges.

The assessment proved quite unhealthy for many of the cooperatives that entered individual insurance markets in some states after the passage of the ACA, according to the Minuteman lawsuit: “Numerous health insurers have shuttered their doors and several others are teetering on the brink of insolvency because they were saddled with massive Risk Adjustment assessments that wiped out their cash reserves.”

Don’t just take it from Minuteman. Gallina, the Anthem CFO, recently told investors that his company had marked down the valuation of the receivables line on its balance sheet “based on our assessment of the financial solvency of co-ops that are payers into the risk-adjusted program.”

Rick Jurgens can be reached at or 603-727-3229.

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