🔒ConnectiCare millions in red during rate case

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When ConnectiCare sued the state in September over what it considered inadequate rates approved for some of its 2017 health plans, the Farmington insurer's finances were deep in the red as the company faced pressures in several of its business segments.

In the midst of its rate case, ConnectiCare was projecting a $55.4 million loss for 2016, which would account for the company's worst annual financial performance since it was acquired by EmblemHealth in 2005, according to financial reports recently provided by credit ratings agency A.M. Best. The losses are concentrated in health plans the insurer sells on and off the state's insurance exchange, Access Health CT — lines of business that were previously profitable for the company.

Several factors, including customers using more healthcare services than expected, contributed to the poor performance, which caused A.M. Best to place the financial ratings of ConnectiCare and other EmblemHealth subsidiaries under review last month.

The financial reports shed further light on the tenuous fiscal position ConnectiCare was in this summer as its executives pushed the Connecticut Insurance Department to approve higher rates for the premiums it charges customers who buy insurance through Access Health CT.

ConnectiCare initially asked in June for a 14.3 percent average rate increase for its exchange plans sold to individuals. The company attempted to modify that request on Aug. 23 to 27.1 percent, citing recent jumps in claims and other factors. When the Insurance Department rejected the revision and approved a 17.3 percent increase, ConnectiCare threatened to leave the exchange and took the rare step of suing the state agency over the matter.

After negotiations, ConnectiCare eventually agreed to remain on the exchange with the 17.3 percent rate increase.

Wise hopes for better 2017

ConnectiCare CEO Michael Wise said in an interview last week — the first he's granted since the conclusion of the rate case in September — that he expects ConnectiCare's business lines to return to profitability in 2017.

Many, including at least one Access Health CT board member, wondered why the company decided to stay on the exchange following its unsuccessful lawsuit that alleged the approved 17.3 percent rate hike could “endanger ConnectiCare's solvency.”

Asked about the change of heart that appeared to occur over a September weekend, Wise pushed back.

“All along there was a consistent message from us that we wanted to find a way to make this work,” Wise said. “From that vantage point, I would say we really never had a change of heart.”

Wise said the company's decisions to sue and then remain on the exchange were not easy, and required balancing the interests of the company and its customers.

“They're not easy business decisions, but we believe we made the right ones,” he said.

While the insurer wanted a bigger rate increase for exchange plans, other rate hikes approved by state regulators, including a 38 percent increase on health plans it sells to individuals outside the exchange, will improve ConnectiCare's financial position next year, Wise said, though it will also hit thousands of consumers' wallets.

Wise said ConnectiCare is also working with its pharmacy benefits manager, which negotiates drug prices and processes claims, to further reduce costs. The insurer is also focusing on paring administrative expenses, and is opening storefront enrollment centers to help offset the loss of third-party brokers in this year's open enrollment period for plans sold through Access Health CT. The centers will also assist off-exchange customers.

“We're very optimistic about the future,” Wise said. “We expect to have a strong 2017.”

There are still concerns, however.

One is the Affordable Care Act's risk-adjustment program, which aims to compensate insurers with sicker populations at the expense of those with healthier ones. A number of insurers and Connecticut regulators have criticized the program's design as more favorable to large insurers.

ConnectiCare's off-exchange division has been “battered” by the program over the past three years, forcing it to pay out $100 million to other insurers, including $37.1 million this year, ConnectiCare CFO Eric Galvin testified to Insurance Department officials in August.

Meanwhile, Anthem — the only other insurer participating in the Connecticut exchange after UnitedHealthcare and HealthyCT left — will receive nearly $51 million from the risk-adjustment program this year.

Risk adjustment was the nail in the coffin for HealthyCT, the small nonprofit insurer that was ordered into runoff in early July after being hit with a $13 million payment.

Wise said he continues to advocate with other insurers for changes to the program.

Other 2016 challenges

ConnectiCare has also experienced a steep increase in health claims this year as more customers utilized more services.

That pushed the company's loss ratio — a key calculation that expresses what percentage of premiums an insurer is paying out for medical claims — to the highest levels in at least five years. The off-exchange business paid out 99.5 percent of its premium revenue on claims in the first six months of this year, up from 80.7 percent for the first half of 2015, while the on-exchange division had a loss ratio of 93.1 percent, up from 75.3 percent, according to A.M. Best's reports.

Galvin said insurers expected Obamacare to cause an increase in utilization, due to pent-up demand from individuals who were previously uninsured. But insurers also expected that spike to level off.

“But rather than stabilize, that cost has continued to skyrocket and we see no end to that higher level of spending,” he said.

As an insurer heavily focused on Connecticut, with no exchange business in any other state, ConnectiCare's financials offer a unique window into the state's health insurance market.

Whether Anthem suffered the same downturn in Connecticut earlier this year, however, is unknown. As a publicly-traded company with exchange business in more than a dozen states, Anthem doesn't break out its individual state results.

However, there is some indication Anthem may be in a similar boat in Connecticut with regards to exchange plans. Anthem revised its annual outlook in late July, saying medical costs wiped out its previous hopes for a slim profit on its overall exchange business, which broke even in 2015 and made money in 2014.

The Insurance Department ultimately allowed Anthem to increase its 2017 exchange plan rates 22.4 percent, compared to an original request of 26.8 percent.