Despite payers voicing concerns about market instability in the individual insurance market, a new Kaiser Family Foundation (KFF) review of 2017 data found insurance companies are regaining profitability in the marketplace.
KFF found that payers struggled with their medical loss ratio (MLR) in 2014 because they did not know how to set premiums for individual insurance in an Affordable Care Act (ACA) world. But MLRs improved in 2016 and averaged 82% in 2017 after large premium increases, leading to more premiums than paid out claims.
KFF also found improved gross margins: payers lost $9 per enrollee in 2015, but improved to a gain of $79 by 2017. “These data suggest that insurers in this market are on track to reach pre-ACA individual market performance levels, and that insurers are generally now earning a profit in the individual market,” KFF said.
Payers’ outlook in the ACA marketplace has improved despite the loss of cost-sharing reduction (CSR) payments, political uncertainty, plans to expand short-term plans and the repeal of the individual mandate penalty in 2019.
President Donald Trump's opposition to the ACA, coupled with an ongoing push to repeal the ACA, has led payers to worry what could happen to the individual market.
Large payers, such as UnitedHealth Group, Aetna, Humana and Anthem, pulled partially out or completely out of the exchanges for 2018.
But the payers that stayed have begun to show signs of profitability over the past two years. A significant reason for the improved financial performance was connected to substantial premium increases in 2017, as well as slow growth in medical claims. Premiums per enrollee increased 22% between 2016 and 2017, while claims per person jumped only 5%, KFF said. Despite higher premiums, KFF said healthy people haven’t fled the exchanges to create an unstable risk pool.
No one sheds tears for insurance companies. But, the success of the ACA depends on private insurers participating, and they have to be profitable to want to participate. That wasn't true in the early years of the law, but it is now.— Larry Levitt (@larry_levitt) May 17, 2018
The report also found that inpatient days on average remained similar in 2017, which shows the member population has not gotten sicker.
“Taken together, these data on claims and utilization suggest that the individual market risk pool is relatively stable, though sicker on average than the pre-ACA market, which is to be expected since people with pre-existing conditions have guaranteed access to coverage under the ACA,” KFF said.
This is good news for payers, but they still face potential issues next year when the individual mandate penalty ends and the Trump administration likely expands low-cost, short-term plans. The actions will likely cause some healthy members to leave the ACA marketplace, especially if premiums increase by double digits again for 2019. Payers in Maryland and Virginia have already proposed hefty premium increases for next year.
“These changes will increase uncertainty for insurers and likely push premiums higher,” KFF said.
KFF also worries about pockets of the country where the ACA marketplace is more fragile, such as states with only one payer in the ACA exchanges. Insurance commissioners in states like Nevada and Ohio scurried to fill in holes for 2018, and there are still fears about potentially bare counties in the exchanges next year.