Fitch: Risk adjustment freeze won’t hurt credit ratings for the largest insurers

A stethoscope and paper money.
The risk adjustment freeze isn't likely to hurt large insurers with big reserves, but smaller insurers are a different story. (Getty/utah778)

The Trump administration’s freeze on risk adjustment payments isn’t likely to put a dent in the finances of some of the country’s largest insurers, according to one rating agency.

However, the same may not be true for smaller insurers with less capital to withstand the freeze.

Most of the large, publicly traded insurers and Blue Cross Blue Shield plans have the capital to withstand payment freeze, Fitch Ratings said in a report on Friday, adding that the suspension is “unlikely to affect ratings for the largest U.S. health insurers.” However, the move is likely to increase premiums and discourage insurers from participating in the exchange.

Several Blues plans are owed hundreds of millions in transfer payments, which could put “moderate” pressure on earnings or cash flow in the short term. But Fitch said it “does not anticipate material capital pressure” to Blues plans.

Three Blues-affiliated insurers would miss out on more than $2 billion in payments if the freeze holds.

“However, Fitch believes that there are likely to be some non-Blue health plans that will face material capitalization pressure if they must write the entire receivable off,” the agency said.

RELATED: Blues plans crushed by risk adjustment freeze as Kaiser skirts nearly $1B

Smaller insurers and consumer operated and oriented plan (CO-OPs) could be the hardest hit, particularly if they payments are abandoned entirely.

“This is a big deal,” Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University said at an event hosted on Friday by the USC-Brookings Schaeffer Initiative for Health Policy. “There are insurers like Blue Cross Blue Shield of Florida that are owed in excess of $660 million for 2017 alone. That’s just one insurance company. They may have huge reserves and its no problem and no cash flow issue, but there’s a little tiny CO-OP in Maine that’s owed over $12 million dollars. I don’t know how long they can hold out without that expected payment.”

CMS data shows Maine Community Health Options will receive $11.3 million in risk adjustment payments. Last year, the CO-OP reported nearly $7 million in losses. Blue Cross Blue Shield of Florida is owed $686 million.

But as other experts have noted, the payments are likely to come through as expected.

“I think this another case of one of those, 'Let’s roll this one out and if it scares a few people,' but by the time we get into the fall, I think they’ll back off from the brink on this,” said Thomas Miller, a resident fellow at the American Enterprise Institute at the USC-Brookings event.

The CO-OP that challenged the case, New Mexico Health Connections, is happy the payments have been put on hold, according to the insurer’s attorney Barak Bassman, a partner with Pepper Hamilton LLP. But it doesn’t want CMS to do away with the program altogether.

“This gives a real opening to CMS and the industry to really come up with a better solution and a better path going forward that will help consumers and the ACA,” Bassman told FierceHealthcare. “That’s our end game. We want to make the ACA work better and want a risk adjustment [formula] that works right.”