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May 10, 2019

Insurers set to repay customers a record $800M in rebates, KFF predicts

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    Individual market insurers in 2018 had their best year since 2011, and they are projected to have to pay back a record-setting $800 million in rebates to enrollees, according to a new Kaiser Family Foundation (KFF) analysis.

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    For the report, KFF researchers examined data insurers reported to the National Association of Insurance Commissioners on average premiums, claims, enrollee utilization, gross margins, and medical loss ratios. The data spanned 2011 through 2018 and focused on insurers selling plans on the individual market, including coverage sold through the Affordable Care Act's (ACA) exchanges.

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    The researchers found insurers in 2018 raised premiums by an average of 26%, which the report authors speculated was in response to uncertainty surrounding the individual insurance market. In 2017, the Trump administration suspended health insurers' cost-sharing reduction (CSR) payments called for under the law, and Congress ultimately eliminated the ACA's financial penalty for consumers who remain uninsured, though that change did not take effect until 2019.  

    But rather than the chaos some industry observers predicted, the KFF analysis found insurers' per-person claims only rose by 7%, and overall utilization rates remained steady.

    As a result, the KFF researchers projected insurers will have to pay a total of $1.4 billion in rebates to employers and consumers across individual, small-group, and large-group markets under the ACA's medical loss ratio requirements, including $800 million among just individual market customers.

    Under the ACA's MLR provision, insurers must issue refunds to customers if they spend less than 80% of the premiums they collect for plans sold on the individual and small group markets or less than 85% of plan premiums in the large group market on medical care. The remaining 15% to 20% can be used to pay for administrative costs, compensation, or profits.

    According to KFF, the $1.4 billion figure would be the largest rebate paid to consumers since the ACA took effect. The previous largest rebate occurred in 2011, when insurers returned a total of $1.07 billion across individual and small- and large-group markets, including $399 million among just individual market customers.

    Cynthia Cox, director of the KFF's program for the study of health reform and private insurance, who led the study, said the Trump administration's decision to end insurer cost-sharing reduction payments likely caused insurers to over-correct their 2018 premiums, resulting in the higher-than-expected 2018 rebates. "Based on how they were performing they likely would have only needed small increases or even to hold premiums mostly flat going into 2018, but instead rates went up by more than 20%," Cox said.

    Individual market insurers have best year ever post ACA

    Further, the KFF analysis showed insurers had their best financial performance since 2011. According to the analysis, monthly average individual market gross margins per member jumped from $78 in 2017 to $167 in 2018. The report stated, "Insurer financial results from 2018—after the [Trump] administration's decision to cease cost-sharing subsidy payments, but before the repeal of the individual mandate penalty in the tax overhaul went into effect—reveal the most favorable year in the ACA-compliant market's history."

    According to Axios' "Vitals," the analysis suggests that the individual insurance market, including the ACA's exchange, has stabilized and is profitable for insurers, even if enrollees in individual plans as a whole tend to be sicker than they were before the ACA took effect (Ross Johnson, Modern Healthcare, 5/8; Owens, "Vitals," Axios, 5/8; Colliver, "Pulse," Politico, 5/8; KFF analysis, 5/7).

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