Humana will write off more than a half-billion dollars in funding from the Affordable Care Act's risk-corridor program, saying the money likely won't be collected from the federal government.
The ACA's temporary risk-corridor program was intended to compensate health plans for providing coverage to people in the uncertain individual and small-group markets. It essentially limits how much money an insurer can lose or gain on the ACA's exchanges. But Republicans in Congress made the program budget-neutral, meaning it would not require a bailout for insurers who now are receiving only a fraction of what they were told they would get.
Humana said Thursday it will write off nearly all of the $591 million it is owed under the three-year program, which expires at the end of this year. The move will slash Humana's year-end earnings per share by $2.45. Humana, which also disclosed 14 cents per share in unexpected costs tied to its pending merger with Aetna, now expects earnings per share will total $6.09 for 2016, down from $8.68.
Louisville, Ky.-based Humana drastically reduced its presence in the ACA marketplaces this summer, following in the footsteps of UnitedHealth Group. Most of Humana's business is in the Medicare Advantage market, and the company did not want to absorb additional losses in the ACA exchanges.
When building their ACA plans, many other companies were cautious and did not assume the collection of risk-corridor payments. Scott Fidel, a healthcare analyst at Credit Suisse, wrote in a note Friday that “Humana's write-down of its risk-corridor receivables balance was a long-overdue action” since it did not plan like its more prudent peers.
Humana said its view of the risk-corridor payments “shifted” after a recent court decision against Land of Lincoln Health, a now-defunct co-op in Illinois. A federal judge ruled in that case that the risk-corridor agreements were not binding. The federal government owes more than $8 billion in risk-corridor payouts.
Ana Gupte, an analyst at Leerink Partners, said in an investor note Humana's write-off may signal it is “clearing the decks for 2017” in case its transaction with Aetna is struck down. Aetna and Humana are in federal court this week and next week defending their $37 billion merger, which the federal government and multiple states have opposed.
