Covered California may let insurers recoup 2018 losses in future years

The board that oversees Covered California will consider a plan Thursday to entice health insurance companies to keep selling individual policies on the state exchange even if they lose money next year. 

Covered California is proposing that insurers who lose money in 2018 on the exchange 2018 "due to enrollment changes and certain federal laws and policies" would be allowed to make larger profits each of the following three years to recover their losses.

The exchange points to ongoing market uncertainty as the reason for the profit proposal. Health insurers are waiting to see if the Trump administration will continue to fund subsidies that cover certain lower-income consumers' out-of-pocket costs.

"It’s always a difficult process even in a more stable policy environment where we can predict more readily what federal and state health care policies are going to be," says Zachary Courser, research director of the Dreier Roundtable at Claremont McKenna College.

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The California Association of Health Plans did not immediately respond to a request for comment.

Health insurance companies set their rates based on what they calculate it will cost them to cover the cost of their customers' health care. Exactly what markets will look like can be hard to predict.

"Health care, of course, has been a sector that has had a higher inflation rate than the rest of the economy," says Courser.

Covered California is finalizing plans for 2018 now. The state exchange announced an average 12.5 percent premium rate hike across the state, assuming Obamacare remains unchanged in the coming year.

As they prepare for next year, Courser says all state exchanges find themselves in a "difficult spot."

"They have to find a way to attract enough insurers in order to make these exchanges work for consumers. And I think to do that, they’re trying to offer some pathway forward to attract insurance providers to continue to operate under the exchanges," he says.

Under the Covered California proposal, the state would refer to each insurer's historic profit margin to determine whether it needs to raise rates that recoup 2018 losses and "maintain adequate reserves."

Under the plan, if an insurer has an unexpected profit next year, the exchange would seek through negotiations "to deduct the unanticipated profits for the 2018 plan year from Contractor’s profit margins" over the subsequent one to three years. 

The California Department of Managed Health Care and the state Department of Insurance have the final say over contracts with health insurance firms.

This story has been updated.