Anthem threatens higher ACA rates if subsidies for poor clients are halted

Anthem Inc. threatened to raise rates for its Obamacare plans next year if the U.S. government stops funding subsidies for lower-income customers, putting pressure on the administration and Republicans to support a key piece of the health law.

Chief Executive Officer Joseph Swedish said on a conference call Wednesday that the insurer could raise its rates by 20 percent if the subsidies aren’t paid to insurers. The subsidies are currently the subject of a political debate in Washington and it’s unclear whether President Donald Trump’s administration will continue to fund them.

The insurer is also considering exiting some Affordable Care Act markets altogether, as many of its rivals have already done. Swedish said Anthem is “assessing our market footprint in 2018.”

“We expect to provide additional clarity on our 2018 market footprint during our second-quarter earnings call, if not sooner,” he said.

Health insurers are expecting about $7 billion in funds, known as cost-sharing reduction subsidies or CSRs, to help low-income people afford out-of-pocket costs under Obamacare. The funds are threatened by a lawsuit that GOP House members filed during the Obama administration.

Lawmakers could promise insurers that they will continue the payments while the lawsuit is ongoing by including them in congressional spending legislation. The spending bill must be passed by Friday but Republican leadership has indicated it may not.

The negotiations on the measure have faltered over Democrats’ demand that the subsidies be funded by Congress to avoid blowing up the Obamacare market if the court rules against the payments.

House Speaker Paul Ryan said Wednesday that “obviously” funds for the cost-sharing subsidies won’t be included in the spending bill, because those payments are currently shouldered by the executive branch.

Swedish said the company needs to know about the payments by June to determine its rates or whether it will exit certain markets next year.

The comments came during Anthem’s first-quarter earnings results Wednesday, in which the insurer beat analyst expectations due to a boost in customer numbers and increased premium revenue. Its shares rose 4 percent to $179.42 at 2:04 p.m. in New York.

The insurer saw growth in its group local, individual and national plans, according to a statement. Its biggest increases were in plans it manages for Medicaid, the U.S. health program for the poor, which grew by 507,000 members.

The company is one of the few big insurers that has remained in the Affordable Care Act marketplaces that its rivals, including UnitedHealth Group Inc., have fled because of losses. Anthem sells coverage under the Blue Cross and Blue Shield brand in 14 states.

Margins in the ACA marketplaces “seem to have improved though it is early in the year,” Ana Gupte, an analyst with Leerink Partners, wrote in a note Wednesday.

Anthem said it expects medical enrollment to grow by 300,000 to 500,000 for the full year, and raised its its guidance for adjusted earnings to at least $11.60 a share. The company had earlier forecast 2017 adjusted earnings of at least $11.50.

“We see the guidance raise as conservative and expect there could be potential for continued increases through the remainder of the year,” Gupte said.

Membership in its plans rose by about 1 million, or 2.6 percent over the year to March 31. Revenue from premiums rose 10.3 percent from the same period a year earlier, Anthem said. Quarterly earnings excluding some items were $4.68 a share, beating analysts’ average estimate of $4.20 a share.

Health insurers have chafed under the ACA, also known as Obamacare, as many of its enrollees have had higher-than-expected medical bills. Analysts have speculated that Anthem will exit at least some Obamacare markets, and Swedish discussed the Republican replacement plan for the Affordable Care Act when he talked with President Donald Trump in March.

Also on the call, Anthem said it hasn’t ruled out using pharmacy benefits manager Express Scripts Holding Co. after their contract expires, sending Express Scripts’ shares up 2.7 percent. The two companies have been embroiled in a legal dispute, and Express Scripts had plunged earlier this week after saying it expected Anthem, its biggest client, wouldn’t renew their contract.