Risk-sharing payments could affect future insurer mergers

Data on risk adjustment and reinsurance payments to insurers could play into future acquisitions, including any proposed deal for Humana.

"You'd at least want to know what level of earnings you paid for," Chris Rigg, an analyst at Susquehanna Financial Group, told the Wall Street Journal. Humana's payments could mean a dip of approximately 7 percent in projected earnings per share for 2015, according to the article.

On Tuesday, the Centers for Medicare & Medicaid Services released calculations of payment amounts for 2014 for two of three programs under the Affordable Care Act designed to encourage insurers to accept high-cost patients. Results from the third program, the risk corridor program, will be announced in mid-August. Both the risk adjustment and reinsurance payments are working as planned, according to the CMS report.

The reinsurance program, which covered patient bills above $45,000 up to $250,000, aimed to collect $10 billion for 2014. It collected only $8.7 billion, but total claims equaled only $7.3 billion to 437 issuers, leaving money for future years.

The risk adjustment program, in which insurers with healthier customers help out those with sicker ones, will transfer 10 percent of funds in the individual market, 6 percent in the small group market, 21 percent in the catastrophic market, and 2 percent in states with merged markets.

The reinsurance program expires next year, while the risk adjustment program is permanent.

States have made similar risk-adjustment efforts, such as Massachusetts' program, under which transfers reflected about 3 percent of the $1.98 billion in merged market premiums, FierceHealthPayer previously reported. Under the Massachusetts initiative, Blue Cross Blue Shield will receive about $1.84 million, while Neighborhood Health Plan faces the biggest payment of $27.6 million.

Critics have derided the three programs as bailouts for the insurance industry, FierceHealthPayer has reported. In an analysis last year, Citigroup found that more than 85 insurers accrued $45 million in payments for risk adjustments, $1.2 billion for reinsurance and $410 million for the risk corridor program in the first half of 2014.

To learn more:
- read the report
- find the WSJ story