Many insurers are losing money in ACA individual markets. According to an analysis by McKinsey & Co., aggregate losses for 2015 may have more than doubled from 2014, with post-tax margins between –9% and –12%.
As a result, average premium rates for individual marketplace plans could rise by 10% or more in 2017.
In an article for The New York Times early this month, Margot Sanger-Katz said at least two states have collected proposed rates for 2017; in those states, popular payers are requesting double-digit increases. “Insurers don’t always get what they want, and there is local variation in insurance rates, but these early requests are in line with statements from insurance officials and regulators about what to expect,” Sanger-Katz said.
Industry experts point to a number of factors that could be contributing to the rise in premiums:
- Increasing medical costs;
- The end of government programs designed to help cover ACA costs in early years;
- Miscalculating the number of enrollees with costly illnesses;
- Early strategic underpricing to gain a larger market share; and
- A higher than expected number of young people who have not yet signed up for an ACA plan.
Lack of competition is a contributor
UnitedHealth Group, the country’s largest health insurer, has lost $1 billion on its ACA plans, according to Modern Healthcare. The company has since decided to exit most of the marketplaces, but will remain in a “handful” during 2017.
In an article for Vox, Sarah Kliff said three states (Alaska, Alabama and Wyoming) are down to only one marketplace insurer – Blue Cross Blue Shield. And several hundred counties nationwide will only have one carrier in 2017, according to The Wall Street Journal.
Blue Cross has already warned that its ACA enrollees should expect steep rate hikes due to higher than expected expenses. “What really surprised us was that we had thought the costs in this new market would be similar to the group market,” Alissa Fox, Blue Cross's senior vice president for policy, told Kliff. “What we've found is that costs are much higher than the group market.”
Government subsidies should prevent a “death spiral”
McKinsey says “the individual market has little risk of entering a classic insurance ‘death spiral’ as long as the federal government continues to offer subsidies to those with incomes below 400% of the federal poverty level.”
The majority of consumers who are enrolled in the individual market (69%) qualify for government subsidies, so their premium costs will be capped at a percentage of income regardless of premium increases.
Staying profitable in the individual market
Not all plans are losing money on the individual ACA market. For example, HMOs and plans with narrow networks have fared better than other types of plans.
To succeed long term on the public exchanges, McKinsey says insurers may have to develop a “fundamentally different business model” and that “the commercial segment model is not viable for the public exchanges.” Payers will also need to remain flexible so they can adjust rapidly as the market evolves.