Why Baptist Health abandoned Kynect (it’s not what you think)

Baptist Health Plan screenshot.

Baptist Health Plan screenshot

Baptist Health Plan has pulled out of Kynect, the state’s health insurance exchange, because it gained too many customers — and because they were too healthy.

The narrative is counterintuitive and stands in contrast to some of the giant insurance companies’ complaints in recent months that the customers they’ve gained on the exchanges have been too sick and expensive.

A Baptist Health Plan official told IL that the insurer was incurring a loss on its exchange customers because of a mechanism in the Affordable Care Act that is meant to level the playing field among insurers.

That mechanism, called “risk adjustment,” requires that insurance companies that gain healthier, less expensive customers through the exchanges pay money to companies that gain sicker, more expensive customers. The mechanism aims to prevent insurers from cherry-picking the healthier customers and leaving other insurers to incur the higher costs from the sicker patients.

However, according to modernhealthcare.com, many smaller insurers, such as Baptist, have been hammered by risk adjustment payments because their limited claims data make their customers look healthier than they are.

James Fritz

James Fritz

Baptist Health Plan president James S. Fritz told Kentucky Insurance Commissioner Brian Maynard in a letter last week that “the federal risk assessments placed upon the organization under the Affordable Care Act is unsustainable by a corporation the size of Baptist Health Plan.”

Adding to the confusion is that Kynect is being dismantled. Starting in November, Kentucky customers will have to sign up for insurance on the federal exchange.

Baptist declined to tell IL how much of a risk adjustment payment it had incurred. However, Jessica Kearney, the insurer’s director of regulatory compliance, told IL that Baptist made the decision to withdraw from the exchange in full awareness of the penalty: For the next five years, Baptist will not be allowed to offer Kentuckians health plans on the federal exchange.

Baptist is the latest insurer to decline to offer insurance plans next year on the health exchanges that are a central part of the Affordable Care Act, known informally as Obamacare.

Aetna, UnitedHealthcare and WellCare had decided earlier that they are abandoning the Kentucky market, according to an analysis of data IL obtained from the Kentucky Department of Insurance. Other insurers, including Louisville-based Humana, are reducing the number of counties in which they are offering plans because they say they are struggling with higher-than-expected costs incurred by customers who sign up for insurance through the exchanges.

Aetna said in August that it expects its individual exchange business to produce a $300 million loss this year. Humana said it expects to record a $337 million loss on that business this year.

Kearney said the declining number of insurers offering plans in Kentucky contributed to Baptist’s decision to withdraw from Kynect.

Baptist this year gained 7,500 customers on the exchange, far more than the 1,000 it expected, Kearney said. With fewer insurers offering plans next year, Baptist leaders worried that they would gain even more customers — which might have required an even greater risk adjustment payment.

So Baptist leaders decided to withdraw, rather than face an even greater loss on the individual exchange business.

“We felt that was the best decision for the company,” Kearney said.

As insurers are abandoning the exchanges, people who shop for insurance plans are left with fewer options: In 59 counties next year — about half the state — people who want to buy insurance through the exchange have only one option: Anthem. Before Baptist’s withdrawal, the number of single-provider counties was 54. Last year, there were none, meaning all Kentuckians had at least two options on the exchange.

Baptist Health Plan, based in Lexington, is part of the Louisville-based nonprofit health system Baptist Health, which has about 2,700 hospital beds and generates about $2 billion in annual revenue. The health insurance arm covers nearly 100,000 people, the majority in southern Indiana and Kentucky.