Optima Health reported record profits in 2018 after it charged Charlottesville-area consumers some of the highest out-of-pocket insurance rates in the country.

The Norfolk-based insurer was the only Affordable Care Act insurer in Central Virginia and tripled local individual marketplace rates in 2018. According to analysis by consumer group Charlottesville for Reasonable Health Insurance, those rates were among the highest-ever levied on individual marketplace consumers anywhere in the nation and resulted in a gross profit on individual products of $332 million.

“As a company, Optima had the highest local rate of anywhere in the nation, the highest statewide average in the nation and now the highest profit among comparable insurers in the country,” said Karl Quist, one of the group’s founders.

According to its annual financial filings, Optima earned $739,967,214 from individual marketplace premiums and paid $414,327,748 in claims in 2018.

Optima disputed the consumer group’s methodology and conclusions. According to the company, its net underwriting gain for the individual marketplace, which takes into account administrative expenses, is $152 million.

Federal law states that insurers must spend 80% of money earned from premiums on consumers’ health and on improving the quality of care, rather than on administrative expenses.

According to filings and a statement from a contracted representative, Optima predicts its medical loss ratio will be far below that benchmark.

The company said its profitable margin and low medical loss ratio reflect the company’s assumed risk due to the loss of cost-sharing reductions, uncertainty about the future of the Affordable Care Act and a quadrupling membership when other insurers left the area. Optima went from covering more than 17,000 people on the individual marketplace in 2017 to covering 60,000 in 2018 in Virginia.

“When insurers were developing rates for 2018, most insurers should have figured out how to keep their MLR at 80%,” said Carolyn Engelhard, a public health expert at the University of Virginia. “But Optima was new to the market, and because they were scaling up so much, they had to take on much more administrative costs. I think they were freaking out and they didn’t know what they didn’t know.”

According to Optima, once the company factors in expected rebates and administrative expenses, its gross margin on the individual exchange products across Virginia is 25%. As a company, its overall margin is 5.7%.

“Optima’s filings reflect a year of unique challenges after all of the national health insurance carriers — Anthem, Aetna and United Healthcare — left Virginia’s Affordable Care Act exchange market due to uncertainty in Washington around the elimination of cost sharing reduction payments,” Optima spokesperson Kelsea Smith said in a statement. “When factoring in the burden of CSR elimination, Optima had to alter rate structures for individual products to maintain quality of service. We recognize the significant impacts the increase has had on some families in the Charlottesville market who did not qualify for federal subsidies.”

Nationally, despite many large insurers fleeing the marketplace in 2018, participation rebounded in 2019 and increases in premiums slowed, according to a report from the Urban Institute in January.

This year, Anthem HealthKeepers reentered Virginia marketplaces, causing a shuffle of local premium prices. On Jan. 1, 7,538 residents in Charlottesville and the counties of Albemarle, Fluvanna and Greene — those most affected by Optima’s rate increases — were enrolled in an ACA plan, according to federal data. A person ineligible for subsidies would have paid $1,012 per month in premiums for a silver plan in 2018, and will now pay $570 per month in 2019, a 44% decrease.

But lower 2019 rates offered by Optima or HealthKeepers remain too expensive for some, including many local entrepreneurs who are ineligible for subsidized rates.

Elizabeth Alcorn and her husband let their health insurance lapse in 2018 after they were quoted a $6,080 premium and $3,000 deductible. They remain uninsured in 2019. Alcorn, a former dentist, is running for state office in the 58th District against Del. Rob Bell, R-Albemarle County, partially on a health care platform.

“This situation should not have happened in the first place,” she said, referencing the State Corporation Commission and the Bureau of Insurance’s rate approval processes. “I really think they need to be held accountable, and it will take a change in the General Assembly to make that happen.”

During the 2019 legislative session, Del. David J. Toscano, D-Charlottesville; Del. Kathleen Murphy, D-McLean; and Sen. Creigh Deeds, D-Bath, sponsored bills that would allow two-owner LLCs to be eligible for small group health plans, require insurers to explain large swings in area rate factors and codify minimum loss ratio rules into state law.

Bell said new state rules about minimum loss ratio and rebates, which go into effect July 1, will provide a good test on whether the state legislature can or should effectively direct affordable insurance rates.

“If that proves sufficient, we may not need others,” he said. “But if we still have a system that sends money back but doesn’t direct it to the right people, these solutions may have a limited effect.”

The company said it will likely issue rebates in August or September and that members in Charlottesville who paid higher premiums may receive a higher rebate. The checks, however, are based on a three-year average and so will likely not equal the additional money local residents have had to pay.

“Still, the fact that they will pay us a rebate means that they overcharged us,” Quist said.

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Ruth Serven Smith is a reporter for The Daily Progress. Contact her at (434) 978-7254, rserven@dailyprogress.com or @RuthServen on Twitter.

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