Health insurers have nearly doubled the amount of borrowed money on their balance sheets in the last five years to cover losses tied to Affordable Care Act exchange plans, particularly the retroactive payments made through the government's risk stabilization programs, according to a report from the A.M. Best Company.
Health insurance companies borrowed $6.4 billion through the end of 2015, a 94 percent jump from the first quarter of 2011. The ratio of borrowed money to capital grew from 3.2 percent to 5.2 percent during the same time frame. The 10 highest borrowing companies used just half of their borrowing capacity, leaving room for additional loans moving forward.
The report notes that the main driver behind increased borrowing was the government's risk stabilization programs, commonly referred to as the "three Rs." Unlike the insurance industry's traditional financial model, where monthly premiums cover medical costs, the reinsurance, risk adjustment and risk corridor programs forced payers to rely on year-end payments that in some cases fell well short of ACA targets.
This year, the reinsurance program paid out $7.7 billion of its $10 billion target, prompting backlash from lawmakers upset that payments were made to insurance companies instead of the U.S. Treasury. Small insurers have also criticized the risk adjustment program for favoring larger, established payers, and Highmark's lawsuit seeking $224 million in unreimbursed losses from the risk corridor program could prompt others to take legal action.
To learn more:
- here's the A.M. Best Company announcement
Insurers air risk-adjustment concerns in meeting with feds
Andy Slavitt, GOP lawmakers spar over reinsurance payments
CMS provides update on reinsurance collections, sets 2016 rate filing date
Highmark's risk corridor litigation: Other insurers could follow suit
Reinsurance program to pay out $7.7B for 2015