HCSC, which owns the Blue Cross and Blue Shield affiliates in Illinois, Montana, New Mexico, Oklahoma and Texas, lost $1.5 billion on its individual ACA-compliant plans in 2015, according to financial filings. After factoring in a premium deficiency reserve, an accounting measure that predicts future losses, the insurer lost $866 million last year on its ACA plans, said Ken Avner, HCSC's chief financial officer.
In 2014 and 2015, the first two years of the exchanges, losses in that segment were “well north of $2 billion,” Avner said. That's roughly double what for-profit insurer UnitedHealth Group said it expects to lose in 2015 and 2016. However, HCSC had more than 1.6 million on- and off-exchange members in individual plans compared with UnitedHealth's 650,000.
HCSC and other insurers have bemoaned the early returns of the healthcare law's marketplaces. Members have been sicker than anticipated, driving up medical costs. A big part of the problem, insurers say, was the issue of “grandmothering” noncompliant health plans. President Barack Obama allowed people—many of whom were healthy and did not want to pay higher prices for exchange coverage—to keep those older plans until October 2017. The CMS recently extended that transitional policy a few months to Dec. 31, 2017.
The ACA's risk corridors provision also has irked insurers. That program was built to limit losses in the early years of the exchanges, but the Republican-led Congress restricted how much the feds could pay out. Consequently, health insurers received only 12.6% of the requested risk corridors payments for 2014.
“If we were actually able to collect on the risk corridor, then a lot of this loss would've been offset,” Avner said.
UnitedHealth threw the market into a panic last fall by suggesting it may exit the ACA's exchanges by 2017 because of the steep losses and issues with the marketplace. But not everyone is convinced UnitedHealth would pull that trigger this early.
HCSC has no immediate intentions of leaving the exchanges, although its Blue Cross and Blue Shield plan in New Mexico ditched that state's marketplace for 2016 because regulators would not approve its rate increases. Avner called the company's proposed rates “justifiable.”
The company made other significant changes to its ACA market for 2016. In addition to raising premiums, the Illinois and Texas subsidiaries nixed PPO plans, which are more expensive but have wider networks of hospitals and doctors that attract sicker enrollees. The Blue Cross and Blue Shield brands in Illinois and Texas are HCSC's two most important markets, representing about 84% of its premium revenue.
“You can't afford to have broad networks,” Avner said. “You get killed on the selection.”
HCSC, which has about 15 million covered lives, did not set aside a premium deficiency reserve for 2016 based on the assumptions those changes will turn the business around this year. “It doesn't mean necessarily that we break even, but it's not losses of this level,” Avner said.
Despite HCSC's woes with the ACA market, the company still improved its overall bottom line thanks almost entirely to the profitable employer business. HCSC's group health plans made $932 million last year, Avner said. Overall, HCSC's net loss totaled $66 million in 2015, compared with a $282 million loss in 2014.
HCSC's year-over-year revenue increased nearly 13% in 2015 to $31.2 billion. When including revenue from administrative contracts with self-insured employers and using common adjusted accounting principles, the company's revenue was about $35 billion, according to a spokesman. That would put HCSC a little behind for-profit competitor Cigna Corp., which had $37.9 billion of revenue in 2015. HCSC's reserves totaled more than $9.4 billion at the end of last year.
The not-for-profit insurer also has been involved in the 2016 campaign. HCSC's political action committee has spent more than $622,000 during the 2016 cycle, much of which has gone to House Republicans and other politicians who are based in HCSC's states, according to the Center for Responsive Politics.