Column: A health insurance CEO explains how Republican actions could sabotage Obamacare

Molina Healthcare, a Long Beach-based health insurer known traditionally as a Medicaid provider, is also one of the more important insurers in the Affordable Care Act marketplace, covering roughly 600,000 ACA enrollees in nine states. So when its chief executive warns that Republican dithering over repealing and replacing Obamacare has the potential to damage the marketplace, it’s time to sit up and listen.

“We don’t know what Congress will do, and certainly President Trump is anything but predictable,” J. Mario Molina, the chairman and CEO of the company founded by his father in 1980, told me Friday. He said his staff is already working on health plan offerings for 2018 — rate applications generally are due around April 1 — but the company hasn’t yet committed to participating in the ACA for next year.

“We don’t have to commit just yet,” he said. “We have some time before we have to make a final decision. We are waiting to see what Congress is going to do.”

A withdrawal or cutback by Molina would be an enormous blow to the ACA. That’s not merely because of the size of its enrollment — roughly 6% of all health plan members in the country — but because of the philosophical commitment the firm has made to the ACA over the years. “We have always believed that participation in the health insurance marketplace is directly aligned with the Molina mission to provide healthcare to people receiving government assistance,” Molina told investment analysts in October.

At the time, he said the company was planning to expand in Florida, Washington and California. Molina HMO plans appeal to lower-income customers because they’re often the low-cost choice in ACA plan categories. About 70% of its customers have household earnings below 250% of the federal poverty line ($60,750 for a family of four), which makes them eligible not only for premium subsidies, but reductions in their deductibles and co-pays.

The company has made money in the ACA market overall, if narrowly — it’s aiming at a margin of 1.5% to 2% on marketplace plans by the end of this year. It’s done so by applying the principles underlying its Medicaid business, such as using narrow networks of doctors and hospitals and community clinics, often leaving big (and expensive) medical centers out of its networks. But it also makes an effort to manage the care of members with chronic conditions, making sure they’re up to date with medication and physician visits. That saves money and keeps the patients healthier.

Molina says the company would be doing even better on the exchanges if not for what he calls a flawed risk-adjustment methodology in the law. The program is designed so that insurers with better-than-expected risk profiles in their customer pools transfer money to those with worse profiles; the idea is to discourage insurers from trying to cherry-pick younger or healthier customers.

Molina says the system has been misdesigned, so that firms charging lower premiums perversely end up paying out to firms charging more. As a low-premium insurer, Molina feels especially disadvantaged. “We think this creates pressure on health plans to increase their premiums,” he told me, adding that 25% of its premiums are being paid out to others under this system. “That’s a hefty amount to turn over to our competitors,” he said.

The Obama administration reworked the formula, but the changes won’t take effect until next year. Excluding the risk adjustment payments, Molina’s brother, Chief Financial Officer John C. Molina, told investors in October, “the [ACA] marketplace for us is great.”

It was plain from our conversation that Molina is frustrated by Republicans’ inability to decide on a repeal-and-replace strategy for the ACA, as well as their assumption that implementing a transition will be easy.

“We know as much as anyone else about what they’ll come up with,” he said. “We see different Republicans coming up with different plans, but there’s no clearly agreed-upon package at this point.” He’s concerned about the feeling of some Republicans that repeal and replacement could be done quickly, especially given the lead time that insurers need to plan ahead. “It took two years to implement the ACA,” he said. “It’s hard for me to believe they’re going to be able to repeal and replace something in time for open enrollment for 2018,” which begins in October.

President Trump’s Jan. 20 executive order, which gave the Department of Health and Human Services and other government agencies broad latitude to start undermining the law by waiving its taxes or financial penalties, is regarded by Molina as “largely symbolic,” since the order specifies that any such actions would be limited by federal administrative regulations. The same goes to the administration’s shutdown of ACA exchange advertising and outreach to last-minute enrollees, reported by Politico on Thursday.

But he says that the time for such symbolic gestures is past. “The ACA has been somewhat of a political football,” he observed. “But now that the president is in the White House and the Republicans have control of Congress, symbolic gestures are no longer necessary. What we really need now is thoughtful discussion and debate.”

Molina is wary, however, of some steps that could materially damage the marketplaces. “The thing that worries me is that Trump could remove the penalty on the [individual] mandate,” he said. This year, the penalty for going without health insurance (collected by the IRS) is $695 per adult and $347.50 per child, up to a maximum of $2,085 per family or 2.5% of income, whichever is higher. Critics of the law say that’s not high enough to goad young, healthy singles into the insurance pool. But Molina says that ending enforcement of the penalty could prompt more young adults to steer clear of open enrollment and try to sign up during the year if they get sick or injured. That would make the entire insurance pool sicker and drive insurer costs higher.

Another potential danger for enrollees involves the law’s cost-sharing reductions. These are subsidies payable directly to insurers that cover deductibles and co-pays for approximately 6 million families with incomes below 250% of the poverty line.

Through a drafting glitch, the Affordable Care Act provided for the subsidies but didn’t appropriate funds for them. The Obama administration paid them anyway, but House Republicans sued, asserting that the payments were illegal unless an appropriation was voted. The House won in federal court but the ruling was stayed pending an appeal by the Obama White House.

The pending lawsuit gave Trump and Congressional Republicans the means to gut the ACA on Day 1 of the new administration; all that would have to happen is for Trump to drop the appeal and Congress to fail to make the appropriation. But since ACA insurance contracts in many states allow carriers to cancel their policies if the cost sharing reductions aren’t made, “If the CSR went away, millions of people would lose their insurance overnight,” Molina said. His firm would have little choice but to follow suit.

That prospect may be what has kept Trump from taking this step. “It’s really in the hands of the Republicans as to whether they want to continue supporting these low-income patients,” Molina said.

Republicans in Washington don’t hear enough from insurance executives like Molina, and too much from ideologues who don’t understand how complicated health insurance is and how dependent American are on a functioning marketplace. Molina knows the ACA isn’t flawless. As he told investors in October, “No undertaking of this complexity and size is ever implemented perfectly.” But his company has found ways to work within its limitations, make money, and serve a large population of needy patients. Obamacare is “a valuable and much-needed program,” he said then. “The marketplaces are generally performing well. They only require modification and adjustment, not wholesale change.”

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