Aetna said this week it is drastically curtailing its participation on the Affordable Care Act's insurance exchanges. But one of the largest not-for-profit health insurers does not plan on abandoning them anytime soon.
Kaiser Permanente, the $61 billion system that includes health plans, hospitals and medical groups, is “absolutely” sticking with the exchanges over the long term, Kaiser CEO Bernard Tyson told Modern Healthcare on Wednesday.
“I view it through the lens of my mission,” he said. “It obligates to us to figure it out, not to get out.”
Kaiser covered about 860,000 people in the individual market as of July, a majority of whom have bought their health plans through the online exchanges. Most of Kaiser's ACA enrollees live in California. Across the country, there are about 11.1 million people with exchange coverage, and an estimated 9 million people have purchased individual plans off the exchanges without subsidies.
Tyson admitted the market is “unstable” right now, with insurers such as Aetna, Humana and UnitedHealth Group losing hundreds of millions of dollars this year alone. The ACA exchange population has been much sicker and more costly than initially expected, which economists, executives and policymakers agree has led to some adverse selection. Congress also has restricted risk-corridor funding that was supposed to buffer losses in the early years.
But those issues have not soured Kaiser's view.
“The idea that I would turn my back on a segment of the American population who really needs the coverage and the care—I'm in for the long haul,” Tyson said. “And I'm cautiously optimistic that at some point, we begin to make sure we have the right regulations, meaning oversight, to make sure the market is behaving like it was intended.”
Kaiser has made a “slight margin” overall on its ACA plans, Tyson said. Centene Corp., Molina Healthcare and Blue Cross and Blue Shield of Florida similarly have found ways to make money on the exchanges. Narrow networks of hospital and doctors, as well as high deductibles, have worked for Medicaid plans like Centene and Molina. Florida Blue has relied on higher premiums than its peers.
The lack of risk-corridor funding has certainly contributed to many of the industry's financial problems, Tyson said, but he argued the main reason some plans have made a profit while others have waded through losses comes down to pricing. Initial premiums in the ACA market were 15% lower than what the Congressional Budget Office had expected. For 2016, premium prices were about 20% cheaper than initial predictions.
“There were conscious decisions made in the pricing of the product when it first started that did not hold logic to the marketplace,” Tyson said. “This is not rocket science. There's a pool of people to take care of, there's an underwriting process, and there were decisions made that … I'm going to consciously underprice, and what I'm going to do is gain market share and over time it's going to work itself out.”
That strategy has burned some insurers. But Kaiser does not price its ACA premiums “to an artificial cost structure that doesn't exist,” Tyson said.
The CMS has already made some fixes to the individual marketplaces at the behest of insurers and plans to make more. Tyson said it's worth remembering how difficult the individual market was before the ACA went into effect. People who were able to afford coverage routinely faced double-digit hikes to their premiums, while millions of others were locked out because they had pre-existing health conditions.
“The individual marketplaces have always been a challenge in the industry,” Tyson said. “It's not like we had something that was perfect, and then we got into all this trouble. This is, in my view, an evolution, but we still have more work to do.”
It's still very possible Aetna, Humana and UnitedHealth could ramp up their exchange presence in the future if more healthy people enroll and the cost of care for sick enrollees goes down. None of those companies exited the marketplaces completely, which would have triggered a five-year freeze from re-entering.
Tyson said companies that are maintaining a large ACA presence are familiar with the market and more flexible in waiting out the changes.
“Some of the competitors who are getting out of the market, the question is, have they been a stronghold in the individual markets?” Tyson said. “I think some of the big players who have a long-term commitment to the individual markets—the Blues, an organization like Kaiser Permanente—probably will figure it out.”
While Kaiser and Florida Blue have registered surpluses on their ACA plans, other not-for-profits have struggled mightily like their investor-owned competitors. Notably, Health Care Service Corp., which operates Blues plans in Illinois, Texas and three other states, lost more than $2 billion on its exchange plans in 2014 and 2015. Blue Cross and Blue Shield of Arizona, which has exited numerous counties throughout the state for next year, had a $32 million underwriting loss in 2015.
