Managed Care Plans Have $252 Million in Their Reserve Accounts
January 19, 2012—Oregon’s preparing to launch a major healthcare transformation that will lead to the creation of coordinated care organizations (CCOs) and integrate physical, mental and dental care for more than 600,000 people on the Oregon Health Plan.
But an important question hangs in the balance. What will happen to the millions of dollars in reserve funds now held by the managed care plans that currently provide such services?
“I’m not sure that any of us know,” said Jeff Heatherington, president of FamilyCare, which has close to 60,000 members and $8.2 million in reserves. Such funds (also called “risk reserves”) are essential for a managed care plan to pay for high or unexpected claims and are calculated based on membership.
Together the 14 managed care plans had $252.3 million in total reserves in June 2011, with CareOregon having $147.2 million, followed by PacificSource at $29.1 million, Lane Individual Practice Association with $18 million and Marion-Polk Community Health Plan with $14.4 million.
“It’s important that we have that stability so we can protect our membership and make sure they have quality healthcare,” said Jeanie Lunsford, the spokeswoman for CareOregon. Without reserve funds, plans could end up denying care to patients when medical costs exceed their operating budgets.
A natural assumption is that these millions of dollars should turn into reserves for the newly-formed CCOs. But, that becomes more complex with discussion under way to create a single entity for the entire Oregon Health Plan population in the tri-county Portland area.
The Oregon Health Leadership Council, which initiated those discussions, doesn’t have a position on what should happen to those reserves. “That’s an issue that needs to be discussed,” said Denise Honzel, executive director.
“But, there are some people who’ve suggested that the reserves of FamilyCare and CareOregon be used to set up that new CCO,” Heatherington said. “I think the answer from both of us is no way. We're not interested in funding someone becoming a CCO.”
There’s even been talk, Heatherington said, of using the reserves from these managed care plans to fund the start-up of a new CCO. “Spending down reserves is ridiculous,” Heatherington said. “We need those reserves for annual operating costs. That is why none of us are willing to spend down our reserves for a CCO.”
FamilyCare experienced a volume of claims higher than usual in 2006, which Heatherington attributes to a bad flu season, and a high number of prematurely born babies. The result was that FamilyCare’s claims shot up unexpectedly by an additional $5-6 million —all of which came from its reserves.
“That’s one of the reasons why you have reserves, because every once in a while you have a year like that,” Heatherington said, involving high risk cases.
The managed care plans have built their reserves up over time. “When we started out 27 years, we had hardly anything in the bank,” Heatherington said. Now FamilyCare takes 3% of any profits made in a particular year, placing those dollars in its reserve account.
Physicians of Douglas County, known as DCIPA, created its reserves by having shareholders – physicians who each gave $7,000 when the organization was formed in 1993 -- to build its reserve fund. “Everybody just kind of gulped and did it,” said Dr. Robert Dannenhoffer, executive director. Now DCIPA has $4.1 million in reserves.
When the CCOs emerge, it will be essential for them to have sufficient reserve funds. But, it’s still unclear how much each organization will need and where those funds will come from.
“I don’t think anybody’s figured that out yet,” Dannenhoffer said. “It is going to be a critically important part of CCO development. They’re all going to need reserves. It’s not like the state is going to rush in and make up for it. The money may come from insurance companies. The money may come from current managed care plans. If you’re talking about a big area that doesn’t have managed care, I’m not sure where the money will come from.”
Without reserves in the bank, “you won't even be able to start operating,” Heatherington said.
“If you’re going to require really high levels of reserves, it’s going to make it really hard for some places to start a CCO,” Dannenhoffer said.
Both Dannenhoffer and Heatherington agree that the problem of having sufficient reserves shouldn’t pose a problem if the current managed care plans turn into coordinated care organizations – a process known as the fast track proposal that legislators will consider when they meet in Salem next month – which could be contentious given the fact that hospital systems and other organizations could emerge and compete to become coordinated care organizations in the same regions of the state.