HealthyCT fails under burden of risk adjustment payment, insurance commissioner says

Connecticut Insurance Commissioner Katharine Wade. Photo by Gov. Dannell Malloy

The federal government's risk adjustment mandate has added another financially struggling consumer oriented and operated plan to the growing list of failed government co-op's established under the Affordable Care Act.

The risk adjustment mandate requires HealthyCT to pay $13.4 million, a figure that will collapse an already ailing insurer, according to Connecticut Insurance Commissioner Katharine L. Wade.

HealthyCT suffered losses in the exchange market in 2014 and 2015.

Yet prior to CMS's risk adjustment rule issued June 30, HealthyCT had adequate capital and sustainable liquidity, Wade said.

Wade on Tuesday placed HealthyCT under an immediate order of supervision, which prohibits the co-op from writing or renewing business effective August 1.

"Unfortunately HealthyCT's financial health is unstable, having been seriously jeopardized by a federal requirement issued June 30, 2016 that it pay $13.4 million to the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services as part of the Affordable Care Act's Risk Adjustment Program," Wade said. "As a result, it became evident that this risk adjustment mandate would put the company under significant financial strain. This order of supervision provides for an orderly run-off of the company's claim payment under close regulatory oversight."

[Also: Risk adjustment burden falls on smaller insurers]

The federal risk adjustment program is intended to spread the risk for carriers participating in ACA exchanges by redistributing funds from insurers with generally healthier policyholders to companies with sicker policyholders and higher claims costs.

The repayment mandate, along with a previous federal decision to withhold payments to companies under the risk corridor program, placed too much financial stress on HealthyCT, according to Wade.

Wade said she and other state insurance regulators expressed concern to federal authorities over the risk adjustment formula and its potential damaging effects, particularly on small insurers such as HealthyCT.

Wade said she personally met with HHS Secretary Sylvia Burwell earlier this year to urge for change to the risk adjustment formula.

HealthyCT became a nonprofit co-op in 2011.

Of the 23 coops formed under the ACA, less than half remain in business.

[Also: Senate subcommittee presses CMS on failed insurance co-ops]

Wade gave the order of supervision to protect the company's 40,000 policyholders in Connecticut and to make certain their claims will be paid, she said. All individual plan members will be fully covered through the end of the plan year on December 31, and all claims incurred during 2016 will be paid.

For 2017, individual plan members must choose a different carrier because HealthyCT plans will no longer be offered, Wade said.

HealthyCT group plans that renewed on July 1 will still have coverage through June 30, 2017.

Twitter: @SusanJMorse