State launches review of Premera’s finances

After the state’s sole individual market health care insurance provider posted a higher than expected profit this year, the Alaska Division of Insurance launched an investigation into the company’s financials.

Premera Blue Cross Blue Shield of Alaska is the last health insurance company standing on the state’s federally facilitated individual insurance marketplace, where Alaskans who don’t get employer-sponsored health insurance or qualify for public options like Medicare or Medicaid can purchase insurance. Despite struggling with the small number of consumers in Alaska and the exceptionally high cost of doing business, the company posted an $18 million profit in 2016, according to its yearly financials.

That was much higher than the expected margin, so the Division of Insurance announced its intention to investigate the company’s financial reports for the last three years in a release Thursday.

“As soon as the Division of Insurance was made aware of Premera’s higher than expected net income for 2016, we began verifying the company’s financial statements,” said Division of Insurance Director Lori Wing-Heier in the release. “While we have not uncovered anything out of the ordinary, we are doing our due diligence — early this month I ordered a financial examination to independently verify what we’ve been told.”

The state has hired Johnson Lambert, a multi-state accounting and auditing firm, to perform the examination and expects it to be finished by May, according to a fact sheet released with the announcement.

Premera is based in Washington. While that state does its own examinations, Wing-Heier said in an interview that she felt the financials merited more review. The state should have a good understanding of its insurers, she said.

“That’s exactly why we’re going in and looking at these things ourselves,” she said.

Part of the discrepancy may have been based on timing. Part of the federal Affordable Care Act provides for reimbursements between insurance companies based on how many high-risk patients they have, and Premera had more of the market share of the high-risk patients than Moda Health, which left Alaska’s individual insurance market effective Jan. 1, 2017 after prolonged financial trouble.

Because of the timing of the transfers from 2014 and 2015, they were recorded on the 2016 financials, which pushed up the numbers for 2016, said Steve Kipp, the vice president of corporate communications for Premera. The program, coordinated by the federal government, is meant to balance out the market between companies, he said.

“What happens if you have companies like Premera, typically Blue Cross Blue Shield companies take on much more risk,” he said. “People who are sicker tend to go with Blue Cross Blue Shield. They tend to go to us when they really need help. When they’re looking for more savings, they go to a different plan.”

Premera has lost millions in the Alaska individual insurance market over the last three years — about $7.7 million, Kipp said. Alaska is a small, volatile market, so it’s important to look at multiple years of a company’s performance before drawing conclusions, he said.

“That’s why these numbers are really confusing and, I think, a little misleading,” he said.

Premera had about 5,000 individual market customers at the end of 2016, Kipp said in an email. That’s compared to about 200,000 customers in the Washington individual market in the same time period, he said. The company’s rates depend on enrollment and claims over time, and so if there are fewer customers and more expensive claims, rates will go up. Studies across the nation have also identified a trend known as super-utilizers — patients who account for a disproportionately large percentage of the claims in a market. For Premera, 33 individual market members in Alaska in the first half of 2014 accounted for $7 million in claims, or more than a third of the total claims costs for all individual members, he said in the email.

In some ways, there is a line that the state is working with — regulators want to make sure the company is following the rules but doesn’t want to lose its only insurer.

“There is a line,” Wing-Heier said. “That being said, we don’t want to be without any insurer, but we also think as the regulator, as the state, we have to have an understanding for ourselves.”

On the note of the higher-than-expected net income, both Wing-Heier and Kipp said it’s not necessarily a bad sign. The company has to prove its stability to keep participating in the market each year, both where it’s based in Washington and with Alaska should the Division of Insurance choose to review its finances, Wing-Heier said.

Despite financial challenges, Premera is committed to staying in Alaska, Kipp said. The company talks with regulators and the state administration frequently and supports several principals, including creating incentives for people to purchase insurance, creating a stable market, providing financial assistance and allowing states to pursue their own innovations. In Alaska last year, one innovation was to pass a reinsurance bill to allow Premera to keep its rates lower than its original projected increase.

It’s hard to say what the effect of the reinsurance bill will be, as they only have a few weeks of data — the bill went into effect Jan. 1, 2017 — but the primary effect will be on the premium rates rather than profits, Kipp said.

“We had a 7.3 percent rate increase this year,” he said. “Without reinsurance, we were looking at a 42 percent rate increase, had reinsurance not been enacted for 2017. It had a big effect on rates.”

The other wild card in the conversation is the uncertainty of health care regulations at the federal level. Had the GOP’s American Health Care Act passed, it would have meant significant changes for the state’s Medicaid enrollees and thus for individual market insurers. If things stay the same as they are now, the state is hoping to address some of the overarching concerns about the sky-high costs of health care in the state, Wing-Heier said. A feasibility study on creating a statewide Health Care Authority is due out in June, which she said may lead to legislation for the 2018 legislative session.

“If (things stay the same), we’re feeling pretty positive that maybe we can start addressing some of the cost of health care, with providers (involved),” she said. “…Red, blue, it doesn’t matter, if we start to see talks again where the market becomes upset, then it’s a different question.”

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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