Suspension of risk-adjustment payments won't affect ACA health insurers' ratings, Fitch says

Earlier this month, the Trump administration suspended risk-adjustment payments to ACA insurers that help subsidize the cost of these insurers accepting high-cost patients by transferring money from insurers with fewer high-cost members.

That suspension is a credit negative for insurance companies due reimbursement under the ACA's "risk adjustment" program, according to Fitch Ratings. However, the agency does not expect it to significantly affect ratings for the nation's largest insurers.

"Many large Fitch-rated insurers generally stood to be recipients of risk-adjustment payments, and for some companies, the amount of payments was anticipated to be rather large in absolute terms," Fitch wrote in a news release. "Although the amounts represent a significant portion of 2017 earnings, given the magnitude of the capital base for these companies, the potential receivables do not represent a material portion of the insurers' overall capital position. The loss of these payments is unlikely to drive risk-adjusted capitalization levels to concerning levels."

Still, Fitch said insurers with fewer high-cost members could experience a one-time earnings and capital benefit. Under the Trump administration's suspension, federal officials won't transfer $10.4 billion payments between insurers for the 2017 benefit year.

The suspension could eventually become permanent, and if that happens, Fitch expects "some short-term volatility in related lines of business as issuers raise premium rates to offset the added risk, or exit the lines entirely."

The agency said that  while it expects no material capital pressure to any Blue Cross and Blue Shield plans if they don't recoup owed risk-adjustment payments, it  believe some non-Blue health plans "will [likely] face material capitalization pressure if they must write the entire receivable off."

Alia Paavola contributed to this report. 

 

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