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The bad news for health insurers in the omnibus spending bill

Fitch Ratings: While legislation delays some ACA taxes, continued risk corridor limits don't bode well

Though it does delay some key Affordable Care Act taxes, the omnibus spending bill also casts further doubt on health insurers' incentives for participating on the ACA exchanges, according to a recent commentary from Fitch Ratings.

The $1.1 trillion bill, passed last month, delays the Cadillac tax, the medical device tax and a fee on health insurers, essentially granting insurers a short-term reprieve, Fitch says. But another provision, which extends limits on funding for the risk corridor program, leaves insurers that operate on the exchanges out in the cold. The program was only able to pay out 12.6 percent of what it owed insurers for 2014, a shortfall that hit consumer operated and oriented plans especially hard.

"While less tax is well received by health insurers, smaller insurers could be most severely impacted if the risk corridors program is gutted further," Fitch notes. A report from fellow ratings agency Standard & Poor predicted that the risk corridor shortfall is likely to continue for 2015 payments. In part because of that shortfall, business on the ACA exchanges was unprofitable for most insurers in 2014 and will likely be for 2015 as well.

It's unclear whether the tax delays included in the omnibus spending bill might hurt funding for the ACA's risk-sharing programs, which includes the risk corridor program and the reinsurance program, the commentary says. In addition, even the best news in the bill for insurers--the delay of the Health Insurance Industry Tax--comes with a caveat. As most plans pass the tax onto their members, the delay makes premiums more affordable but may not necessarily benefit insurers financially, Fitch points out.

The passage of the spending bill comes at a time of renewed concerns about insurers' ability to operate on the ACA exchanges. Not only have many CO-OPs folded, but UnitedHealth's leadership recently expressed strong doubts about the exchanges' sustainability following a revised earnings outlook.

To learn more:
- here's the commentary

Related Articles:
House reaches budget deal that would delay some ACA taxes
Report: Risk corridor woes likely to continue
Delay of ACA tax could hand health insurers a victory
House's $1.1 trillion budget deal won't affect the core of ACA
Report: ACA business unprofitable for most health insurers