California's biggest health insurers are among a select few to show a profit selling
In the first year of the massive coverage expansion, California's three largest health insurers bucked the national trend of heavy losses and accounted for half of the gains reported under the Affordable Care Act in 2014.
Blue Shield of California led the country with $107 million in profit on Obamacare policies sold to individuals.
Nationwide, insurers reported just $362 million in total profit under a federal rate-stabilization program, while most insurers recorded big losses — a total of $2.87 billion.
Critics have seized on the industry losses as a sign that the health law is failing. Those concerns were amplified when the nation's largest insurer,
Now some experts point to California's experience as a sign that this can be an attractive business for insurers — so much so that it has raised questions about whether state officials should have pushed harder for lower rates.
"The data show insurers did not do well nationally," said Larry Levitt, a senior vice president at the nonprofit Kaiser Family Foundation. "But in parts of the country where things were working smoothly, like California, insurers were making money."
This new federal data offer the most extensive look yet at how insurance companies fared under the new rules of the Affordable Care Act. The figures are part of a "risk corridors" program designed as a temporary cushion against high medical claims during the first three years of the national healthcare overhaul.
Under the program, insurers that made money were required to send those funds to the federal government to offset the losses of other companies participating in Obamacare. The arrangement means that California insurers won't keep these 2014 profits.
Neither will the companies that lost money be made whole right away. The losses were so widespread, and the gains so paltry, that the federal government could only cover 13 cents for every dollar the companies lost. Officials have vowed to use money from this year and 2016 to pay what's already owed.
Several factors helped California health plans outperform the nation, including strong early enrollment and a politically unpopular decision on policy cancellations.
Amid a national uproar, Covered California defied the Obama administration and required participating insurers to cancel existing individual policies at the end of 2013.
That move created a healthier, more diverse mix of old and new policyholders at the start of the exchange. About 35 other states allowed consumers to stay longer on health plans that didn't comply fully with the new law.
That decision left many states with a smaller and sicker population signing up for Obamacare. Many new enrollees had been denied coverage previously because of pre-existing conditions.
"Federal data show California had the healthiest risk pool of all 50 states," said Mike Beuoy, a vice president and actuary at Blue Shield.
But he and other industry officials say it was hard to predict what would happen heading into the first year of Obamacare coverage.
"We were setting rates for 2014 in the absence of any hard information on what the risk pool would look like," Beuoy said.
Insurers noted that these excess profits represent a small percentage of the $4.6 billion in premiums paid in the Covered California exchange during 2014. Taxpayers paid about 70% of those premiums through federal subsidies that consumers received based on their income, state data show.
"In hindsight, the rates we charged in the individual market were higher than they needed to be," said Mick Diede, chief actuary at Kaiser Permanente, the state's largest insurer.
For 2015, Kaiser cut its rates 1.4%, on average.
"I think the California experience was a bit of an anomaly," Diede said. "We expect it to even out."
Other California insurers may have been helped by the fact that many consumers had difficulty finding a doctor or getting care during 2014. That could have reduced medical claims, boosting the bottom line for companies.
Blue Shield and Anthem Inc., in particular, struggled to deal with the surge of applicants early on and then compounded those enrollment glitches with inaccurate provider directories, regulators found. Officials at Covered California and the insurers say they are examining to what extent those barriers reduced claims.
Michael Johnson, a former Blue Shield official and now a company critic, said the San Francisco insurer should issue more refunds to customers. "Blue Shield made this huge profit because they hindered access to care," he said.
The company already paid rebates worth $62 million to its individual policyholders for 2014 because it didn't spend a minimum of 80% of premiums on medical care.
A spokesman for Blue Shield said its customer service and provider information have both improved since last year.
A recent report underscores how well California health insurers have held the line on spending premium dollars on medical care despite enormous changes in the market.
California was one of only three states nationwide in 2014 where insurers paid out less than 80 cents of every dollar in premiums on medical care, according to Urban Institute researchers. The state went from 81.5% in 2010 to 79.8% last year for the individual market.
Last year's surplus in California might prompt regulators to take a closer look at the rates that individuals and families are paying for Obamacare.
"Did Covered California push as hard as it could on rates? It's a legitimate question to ask," said Katherine Hempstead, who studies health insurance issues at the Robert Wood Johnson Foundation.
Unlike most other states, California negotiates premiums with health plans and doesn't allow every insurer into its exchange.
Peter Lee, Covered California's executive director, said the state has been effective at achieving stable rates that spare most consumers from double-digit increases annually. The average rate increase in Covered California was 4% for both 2015 and 2016.
"A few plans in California made a little bit more than they thought they would in 2014," Lee said. "This is evidence the California exchange market can work for patients as well as health plans."