Analysis: Individual health insurance market shows signs of stabilizing

The individual health insurance market is showing signs of stabilizing, and insurers might see significant improvements in their financial performance in the market this year, according to a Kaiser Family Foundation (KFF) analysis published Friday.

Analysis details

For the analysis, KFF researchers examined insurer-reported financial data on health plans sold both on and off of the Affordable Care Act's (ACA) exchanges. The researchers used the data to compare the average medical loss ratios (MLRs)—which represent the share of collected premiums that insurers spent on medical care—for individual health plans insurers sold from 2011, before the ACA's coverage expansions took effect, through 2016. The researchers also compared insurers' monthly gross margins per member—which represents the average amount by which premium income exceeds claims costs per enrollee—for individual health plans sold from 2011 through 2016.

Findings

The researchers found that insurers' financial performance on individual market plans worsened during the exchanges' first two years, but showed signs of improving in 2016.

For instance, they noted after reaching a high of 103 percent in 2015, insurers' average MLRs on individual market plans declined by 7 percentage points, to 96 percent, in 2016. The researchers noted that insurers would need their MLRs to drop to between 85 and 90 percent to be profitable, so even though MLRs remained relatively high, the downward trend is positive. 

The researchers attributed the decline between 2015 and 2016 to insurers having the data needed to set appropriate premiums.

The researchers found a similar trend when they examined insurers' average monthly gross margins per member from 2011 through 2016. According to analysis, insurers reported average monthly gross margins per member of:

  • $6.54 in 2014;
  • ·-$10.17 in 2015; and
  • $13.54 in 2016.

Discussion

The researchers said there findings "can be taken as a sign that the [individual insurance] market is stabilizing" and "insurers may significantly improve their financial performance" on individual health plans in 2017.

However, the researchers cautioned that there is "tremendous uncertainty going forward" that could make insurers hesitant to participate in the market, such as "mixed signals from the [Trump administration] and Congress over the direction and timing of ACA repeal efforts, and a lack of clarity on individual mandate enforcement and payments for cost-sharing subsidies."

The KKF analysis' findings are similar to those in a report Standard & Poor's released earlier this month. According to Axios, when taken together the "reports show the individual insurance market is not imploding" (Small, FierceHealthcare, 4/21;  Haefner, Becker's Hospital Review, 4/21; Herman, Axios, 4/24; Cox et al., Kaiser Family Foundation analysis, 4/21).

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