What does Blue Cross’ parent company want from a GOP health bill?

By now, it’s clear where most groups stand on the issue of repealing and replacing the Affordable Care Act. The American Medical Association, the American Hospital Association and the Illinois Health & Hospital Association have all voiced grave concern about the implications of any potential GOP-sponsored health care bill that rolls back Medicaid.

But one huge player here remains conspicuously mum: Health Care Service Corp., the Chicago-based parent company of Blue Cross & Blue Shield of Illinois, the state’s largest insurer. That’s despite the fact that the current replacement bill, known as the American Health Care Act, stands to upend insurance markets, particularly Medicaid and individual markets.

Free-market enthusiasts argue that fewer regulations would benefit carriers, which struggled to make money on Obamacare’s exchanges. The reality, though, is that the Republicans’ replacement efforts have re-introduced tremendous uncertainty into a market that had just begun to feel predictable—which makes the situation far worse.

“Across the board for all of the carriers, there is concern regarding the stability of the markets and, in particular, of the individual markets,” says Nancy Daas, director at Cottingham & Butler Insurance, a Chicago broker that advises businesses. “That’s a main concern for Blue Cross, because they are the largest player on the public exchange and in the individual market in Illinois. They’re watching these bills go through Congress, trying to understand them in that framework.”

Not that HCSC is watching idly: The company supports the industry’s high-powered lobbying group, America’s Health Insurance Plans, which has been huddling with legislators behind the scenes.

The insurance giant has a lot at stake. It finally returned to profitability in 2016, posting net income of $106.3 million on $30.5 billion of premium revenue. That follows a two-year period of financial freefall after the Obamacare implementation. Ratings agency Standard & Poor’s downgraded HCSC last year because of what it called “persistent marginal to weak operating performance”; it deems the company’s outlook stable—for now.

Business likes certainty, and that’s doubly true for the insurance industry. The lack of legislation this far into the year has been particularly harmful to carriers, which must make decisions now about 2018 rates. They also must decide whether to participate in the state exchanges, established by President Barack Obama’s ACA, without knowing who they’ll be mandated to insure next year. And they can’t exactly look to the bill passed in May by the U.S. House as a guide: President Donald Trump has begun publicly decrying it as the Republican-controlled Senate races furiously—but very privately—to pass a new one before Congress breaks for the July 4th holiday.

“We’re currently asking insurers to make strategic decisions without knowing the rules of the game,” says Amanda Starc, an associate professor at Northwestern University’s Kellogg School of Management who studies health economics. “They don’t know what to expect from the government or what consumers will do, and they don’t know who’s going to be in the risk pool. From a process standpoint, that’s very troubling.”

Given the overwhelming uncertainty, HCSC says it can’t answer questions about the best possible outcome. “Answers . . . are complicated since the landscape is dynamic, and we don’t yet know what the final legislation will contain,” Kurt Kossen, HCSC’s divisional senior vice president for retail markets, writes in an email to Crain’s.

Under Obamacare, the government pays subsidies to insurers to cover some of the medical costs for about 7 million lower-income Americans who purchase health insurance via exchanges. If the current administration does not fund those subsidies next year, as Trump has threatened, the carriers’ rates will have to significantly increase. If those much higher rates aren’t approved by regulators, the answer is to not enter the market at all. “One of our concerns is what will happen if the government doesn’t fund the cost-sharing subsidies, which they’re funding only in 90-day increments,” says Hema Singh, an analyst with Standard & Poor’s.

HCSC has begun working through the regulatory process that would allow it to participate next year in the ACA exchanges in the five states its Blue Cross subsidiaries cover. A final decision about whether to participate won’t come until the fall, when final rates are due. If the subsidies are not funded then, insurers might increase prices by 20 percent, according to a study by the Henry J. Kaiser Family Foundation.

“We hope to once again participate in the individual market, and are working with regulators at the state and federal levels to achieve a stable, sustainable market,” an HCSC spokeswoman says via email.

The potential threats to Illinois Medicaid pose another layer of uncertainty for Blue Cross here.

Though HCSC makes most of its money from employer and individual plans, it nonetheless benefited from Illinois’ expansion of coverage for the poor and disabled. Of the five state Blue Cross plans that make up the insurance giant—Illinois, Montana, New Mexico, Oklahoma and Texas—all but Oklahoma participate in Medicaid, but Illinois provides almost all of the business.

Illinois’ Department of Healthcare & Family Services, which administers the state’s Medicaid program, says it paid Blue Cross about $1.4 billion so far in fiscal 2017, which concludes at the end of this month.

During the 2016 calendar year, HCSC as a whole pulled in $1.4 billion from Medicaid payments, or less than 5 percent of its overall premium revenue. Still, Illinois’ program expansion doubled that figure from 2015, when HCSC received $717 million from Medicaid.

Even though Blue Cross is not as exposed to Medicaid as other insurers, any rollback of the program stands to hurt it in another way.

“If you have folks who no longer qualify (for Medicaid), the only ones who are going to show up for the individual market are the sick ones,” Starc, the Kellogg professor, says.

That brings up another concern: the fate of the ACA’s individual mandate to purchase insurance or face a penalty. The GOP plan scraps Obamacare’s tax for those who opt out of insurance, a rule that keeps healthy people in the system and helps offset the cost of insuring sick ones. Instead, the repeal plan increases premiums by about 30 percent for people who’ve let coverage lapse for 63 days. The goal is to prevent people from gaming the system and buying insurance only when they know they’ll have a major claim.

This requirement, on its face, seems like it might be a boon for Blue Cross.

Kossen, the Blue Cross exec, agrees, saying via email that such continuous coverage requirements “must be carefully considered” and “will help stabilize the marketplace and make coverage more affordable in the near term.”

But actuarial experts say the 30 percent upcharge on hopscotchers won’t actually cover Blue Cross’ costs—or deter such behavior. Healthy people might still get sticker shock and realize skipping insurance for a while—and then paying the penalty later—will cost them less overall than keeping uninterrupted coverage. That’s untenable in an industry that can’t make the numbers work without healthy participants.

“What​ does​ Blue​ Cross’​ parent​ company​ want​ from​ a​ GOP​ health​ bill?”​ originally​ appeared​ in​ Crain’s​ Chicago​ Business.