Payers are continuing to improve their financial performance in the individual insurance market in 2018, according to a new Kaiser Family Foundation issue brief.
KFF said payers are returning to pre-Affordable Care Act levels of profitability, after some rocky times acclimating to the health law. Insurance companies have learned how to maneuver the marketplace and years of premium increases have led to profits.
It’s not all good news for the exchanges, though. They remain unsteady in some parts of the country with little competition and not enough healthy members to adequately balance paying for the sickest enrollees. Plus, the patient risk pool may be getting sicker.
The analysis is another example showing contentions that the ACA exchanges were in a “death spiral” were premature.
After years of uneven footing, payers in the ACA exchanges are enjoying expanding profits. Even in 2018, when payers and ACA advocates warned that Trump administration attacks on the law would create an unstable market, insurance companies are seeing even better financial numbers.
Payers imposed double-digit premium increases for 2018 after President Trump stopped cost-sharing reduction payments to insurance companies, and his administration cut open enrollment for the exchanges in half and severely reduced outreach and marketing budgets. A handful of national payers also fled the marketplace for 2018.
However, warnings of mass upheaval in the exchanges never happened. In fact, after years of hefty premium increases, payers are proposing modest rate hikes for 2019. A recent analysis by the Associated Press and Avalere Health found that 11 states will see an average premium decrease in 2019.
The previous two years of increases came from the market needing a one-time correction to adjust for a sicker-than-expected risk pool and policy uncertainties, according to Kaiser.
Payer fortunes began to improve in 2016. That was the year when medical loss ratios (MLRs) started to decline, which suggests better financial performance. MLRs got even better in 2017 as insurance companies imposed large premium increases. KFF said MLRs averaged 69% in the first six months of 2018, compared to 77% in 2017, 89% in 2016 and 93% in 2015.
“This suggests insurers were able to build in the loss of payments into their premiums, and some insurers may have even over-corrected,” KFF said.
Payers have also improved average gross margins per member per month. Payers in the first half of 2018 had an average individual market gross margin per member per month of $155.70 compared to $92.85 in 2017, $38.28 in 2016 and $21.40 in 2015. KFF said these numbers show that payers in the exchanges have met or exceeded pre-ACA market performance levels.
Another example of stability is that payers are taking in more premiums than paying out claims. On average, second quarter premiums per member grew 23% over the year. Per member claims increased by 10%.
Not all metrics are moving in the right direction, however.
The number of days individual market enrollees spent in a hospital in the first half of this year was higher than in the previous three years. This could mean the market’s risk pool is worsening as healthier members drop coverage. That trend may intensify in 2019 when the individual mandate penalty goes away and healthy people can drop coverage without fears of getting whacked at tax time.
Another issue is the Trump administration's expansion of short-term health plans and association health plans. Critics fear allowing anyone to have a short-term health plan could lead to an exodus of healthy people from the exchanges, leaving no balance for the sicker members.
Despite those issues and fears about coverage losses in 2019, insurance companies appear confident about the exchanges for next year. That’s evident when they proposed moderate premium increases for next year.