Insurers selling individual health plans had stronger financial performance during the first six months of this year than they have had in all other years since the Affordable Care Act's (ACA) coverage expansions took effect, according to a Kaiser Family Foundation (KFF) brief published Friday.
For the brief, KFF researchers examined financial reports from insurers selling individual health plans. The researchers examined insurers' average claims, enrollee utilization, gross margins, medical loss ratios, and premiums from the second quarter (Q2) of 2011 through Q2 2018. The data included individual health plans purchased through the ACA's exchanges, ACA-compliant health plans purchased off the exchanges, and individual health plans purchased before the ACA took effect.
The researchers looked to determine how health insurers participating in the individual market have responded to changes implemented under the Trump administration, such as the administration's decision to stop cost-sharing reduction payments called for under the ACA and to scale-back outreach for and shortening the ACA's open enrollment period.
While the researchers speculated that the recent policy changes might have "destabilize[d] the individual market," they found that the 2018 data suggest insurers in the individual market are "returning to pre-ACA levels of profitability."
The researchers found that insurers' medical loss ratios (MLRs) declined, averaging about 69% during the first six months of 2018, compared with 77% during the first six months of 2017. The researchers noted that although the average annual MLR for 2018 likely will be higher than 69%, the data "nevertheless" suggest "that individual market insurers on average are on a continuing path towards significantly improved profitability."
The researchers also found that insurers' "average gross margins per member per month, or the average amount by which premium income exceeds claims costs per enrollee in a given month," have continued to increase. According to the researchers, the average Q2 individual market gross margin per member per month was $155.70 in Q2 2018, up from $98.85 in Q2 2017. The researchers wrote that the data suggest "that insurers are generally now earning a profit in the individual market."
What's driving financial performance?
According to the researchers, insurers' positive financial performance likely has been driven by premium increases for 2018 individual health plans, paired with comparably slow growth in claims for medical expenses. The researchers wrote, "On average, second quarter premiums per member grew 23% from 2017 to 2018, while per member claims grew only 10%." However, the researchers projected that claims costs would increase over the rest of this year, as enrollees meet their health plans' deductibles.
The researchers said the administration's decision to stop making cost-sharing reductions payments to insurers was a major reason why insurers increased premiums for 2018 individual health plans.
Despite their findings, the researchers warned that recent policy changes still could have negative effects on the individual health insurance market. For example, they wrote that the elimination "of the individual mandate penalty … and the likely proliferation of loosely-regulated short-term insurance plans cloud expectations for the future."
Further, the researchers warned that rising premiums might mean more healthy enrollees forgo coverage, which could mean individual health plans have sicker and more costly risk pools. According to the researchers, the data showed that the average number of days enrollees spent in the hospital during the first six months of 2018 was higher than it had been when compared with the last three years, which could signal a change in the risk pool.
The researchers wrote, "These changes will increase uncertainty for insurers and push premiums up, but premium increases on average for 2019 are still likely to be modest due to the fact that insurers over-corrected with previous rate hikes and therefore cannot justify substantial further increases." They continued, "If not for these policy changes, it is possible that premiums on average could be flat or even decreasing in 2019" (Hellmann, The Hill, 10/5; Fehr et al., Kaiser Family Foundation brief, 10/5).
Cheat sheet: What you need to know about the ACA
The Patient Protection and Affordable Care Act, otherwise known as the ACA, is the comprehensive health care reform bill passed by Congress in March, 2010. The law reshapes the way health care is delivered and financed by transitioning providers from a volume-based fee-for-service system toward value-based care.
Download the ACA cheat sheet to get a quick overview of this significant U.S. health care legislation.