Blue Cross Projects $400M Loss On Its ACA Business In North Carolina

Jan. 29--Blue Cross and Blue Shield is projecting a loss of more than $400 million on its Affordable Care Act business in North Carolina, prompting the insurer to eliminate sales commissions for agents and impose other emergency measures to stem financial losses it attributes to the federal health care law.

Blue Cross, the state's largest health insurer, provided the grim financial update to insurance agents this week as a rationale for ending payments to the agents and for terminating its advertising of ACA policies. The Chapel Hill insurer also plans to stop accepting applications online through a web link that provides insurance price quotes. The move is an attempt to screen ACA applicants and verify they are eligible for health insurance.

The insurer outlined the changes during a webinar it hosted Thursday. Hundreds of agents from around the state logged on to hear a presentation from Roy Watson, Jr., Blue Cross's sales director for individual and small group markets.

According to agents who listened to the webinar, Watson said the company's combined loss for 2014 and 2015 on ACA customers is expected to top $400 million when the company announces its year-end financial results in the coming weeks.

"Let's face it, we've got a crisis here," said Raleigh insurance agent Wanda Stephens. "They point-blank said: If you have a quoting link for Blue Cross on your website, that you should take it off."

Blue Cross declined further comment but did not challenge the agents' descriptions.

The dramatic deterioration in Blue Cross's ACA business is causing increasing alarm among agents and public health officials.

N.C. Insurance Commissioner Wayne Goodwin said he intends to send a letter next week to U.S. Health Secretary Sylvia Burwell outlining his concerns on "this matter of very high priority concern," as well as other pressing developments.

Goodwin has also expressed concern over the technology malfunctions affecting coverage verification and payment systems for numerous Blue Cross customers. The ongoing issue has prompted 613 complaints to date to the state Department of Insurance, which is intervening on behalf of customers who need health insurance immediately for emergency treatment and serious illnesses.

Blue Cross will provide greater clarity about its financial situation when it reports its financial results. Last year, the insurer announced the results in late February.

New market

Blue Cross is the only health insurer offering ACA plans in all 100 counties in North Carolina. The company's fortunes with the ACA are widely seen as a barometer of the federal insurance program's prospects in the state, which has been celebrated for achieving among the highest ACA enrollments in the country.

A financial loss in the second year of ACA enrollment is not wholly unexpected, but the ACA should stabilize eventually, said Mark Hall, a Wake Forest University law professor and director of the university's Health Law and Policy Program.

"People do recognize we can't expect insurers to sustain that level of loss," Hall said. Hall noted that insurers are still learning "the real world behavior of this market -- a newly created market under new rules we didn't have before."

Blue Cross reported an operating loss of $50.6 million in 2014 -- the company's first loss in 15 years -- attributing it to its ACA business and its Medicare Advantage business. That year, Blue Cross said it lost $123 million on its ACA policies, even after a $343 million infusion from reinsurance and other financial aid programs created by the ACA.

Other lines of business, such as providing insurance through employers, were profitable and reduced the company's overall loss.

For 2015, Blue Cross will also be able to recover its ACA losses through the federal assistance program, but it's not clear if the company will be able to recoup the full loss or only a portion.

Raising rates

The not-for-profit company raised rates by an average of 32.5 percent for 2016, with the approval of the N.C. Department of Insurance, saying the rate increase was necessary to ensure financial solvency. But the financial benefits of that rate increase became effective in January and will have no effect on the company's 2015 results.

Blue Cross was the last of the three health insurers offering ACA plans here to pay sales commissions to insurance agents. UnitedHealthcare and Aetna had previously said they would stop paying agent commissions, moves calculated to limit ACA enrollment. Without a sales commission, an agent will not be paid for directing a client to a particular insurer, giving the agent no financial incentive to make the sale.

"We were committed to paying commissions in 2016 until UHC and Aetna stopped paying commissions," a Blue Cross FAQ page on its website says. "We have made this decision to ensure the sustainability of our company for our customers."

Watson told the agents that the company is eliminating sales commission from April 1 through Dec. 1, the period during which "open enrollment" is closed but people can sign up under special exemptions. Special enrollment is open to those who have gotten married, have added children to their households, moved to another state or lost their job, among other circumstances.

Watson told agents that people who buy insurance during the special enrollment period end up costing twice as much in medical claims as other ACA customers. Some of those special enrollment customers stay insured just several months, enough time to rack up medical expenses for Blue Cross to pay, before discontinuing coverage, Watson said, according to those on the webinar.

Discounted coverage

Blue Cross plans to process applications by telephone to make sure the applicants are eligible under the federal exemptions for special enrollment.

"They're going to make sure you're not just sick and want coverage," said Greensboro broker Rob Luisana. "They want to make sure that you're meeting the rules."

However, applicants will also be able to apply through healthcare.gov, the federal ACA portal.

Several insurance agents said one reason Blue Cross is getting pummeled by the ACA is because low-income people are signing up for steeply-discounted coverage. The law requires most Americans to have health insurance, and offsets the cost with federal subsidies for households below certain income levels.

Many of those people would have been eligible for Medicaid if state officials had expanded the federal health program for the poor under the ACA.

"In North Carolina, the Affordable Care Act was not fully implemented," said Adam Linker, a policy analyst for the N.C. Justice Center, an advocacy group in Raleigh. "Obviously, that is not a sustainable way for insurance companies to operate."

But Linker was reluctant to condemn customers who take advantage of the system.

"People getting on insurance, getting benefits and dropping out -- I wouldn't call that fraud," Linker said. "That's a reflection of the desperation people have. People are just struggling with the price of health care so they're going to do whatever they can to get care."

John Murawski: 919-829-8932, @johnmurawski

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