Recently released first quarter financial data from 2017 found that premium increases brought insurer performance back to levels before the Affordable Care Act (ACA) (P.L. 111-148) was enacted. According to an issue brief by the Kaiser Family Foundation (KFF), the new financial data provides support that the individual market has been stabilizing and that insurers are regaining profitability.
Medical loss ratios. Not surprisingly insurer financial performance as measured by loss ratios—the share of health premiums paid out as claims—worsened in the earliest years of the ACA, but began to improve more recently. The issue brief noted that the market had just undergone significant regulatory changes in 2014 and insurers had very little information to work with in setting their premiums, even going into the second year of the exchange markets.
In 2017, following large premium increases, individual market insurers reported improvement in loss ratios, averaging 75 percent in the first quarter. First quarter loss ratios tend to follow the same pattern as annual loss ratios, but in recent years have been 10 to 15 percentage points lower than annual loss ratios. KFF noted that although 2017 annual loss ratios are therefore likely to end up higher than 75 percent, this was evidence that individual market insurers on average are on a path toward regaining profitability in 2017.
Margins. KFF also examined the average gross margins per member per month—or the average amount by which premium income exceeds claims costs per enrollee in a given month—as another way to view the individual market financial performance. KFF found a similar pattern to the medical loss ratios, where insurer financial performance improved dramatically in the first quarter of 2017 (increasing to $99 per enrollee, from a recent first quarter low of $36 in 2015). The authors noted that while annual 2017 margins are unlikely to end as high as they are in the first quarter, the data suggested that insurers in the market are on track to reach pre-ACA individual market performance levels.
Insurer uncertainty. The authors stressed that although the individual market on average was stabilizing, some areas of the country were much more fragile. In addition, policy uncertainty has the potential to destabilize the individual market generally, especially as both the Trump Administration and Congress send mixed signals as to whether cost sharing subsidy payments will continue or whether the individual mandate will be enforced.
As a result, the authors suggested that 2017 premium increases were necessary as a one-time market correction to adjust for a sicker-than-expected risk pool. Although individual market enrollees appear on average to be sicker than the market before the ACA, data on hospitalizations in the current market suggest that the risk pool is stable on average and not getting progressively sicker as of early 2017.
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