July 14, 2017

INSURERS WILL COME BEGGING TO BE READMITTED:

Individual Insurance Market Performance in Early 2017 (Cynthia Cox and Larry Levitt, 7/10/17, Kaiser)

Concerns about the stability of the individual insurance market under the Affordable Care Act (ACA) have been raised in the past year following exits of several insurers from the exchange markets, and again with renewed intensity in recent months as debate over repeal of the health law has picked up. Our earlier analysis of premium and claims data from 2011 - 2016 found that insurer financial performance indeed worsened in 2014 and 2015 with the opening of the exchange markets, but showed signs of improving in 2016. A similar analysis by S&P looking at a subset of Blue Cross Blue Shield plans found a comparable pattern.

In this brief, we look at recently-released first quarter financial data from 2017 to examine whether recent premium increases were sufficient to bring insurer performance back to pre-ACA levels. These new data offer more evidence that the individual market has been stabilizing and insurers are regaining profitability.

We use financial data reported by insurance companies to the National Association of Insurance Commissioners and compiled by Mark Farrah Associates to look at the average premiums, claims, medical loss ratios, gross margins, and enrollee utilization from first quarter 2011 through first quarter 2017 in the individual insurance market.1 These figures include coverage purchased through the ACA's exchange marketplaces and ACA-compliant plans purchased directly from insurers outside the marketplaces (which are part of the same risk pool), as well as individual plans originally purchased before the ACA went into effect.

As we found in our previous analysis, insurer financial performance as measured by loss ratios (the share of health premiums paid out as claims) worsened in the earliest years of the Affordable Care Act, but began in improve more recently. This is to be expected, as 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.

Loss ratios began to decline in 2016, suggesting improved financial performance. In 2017, following relatively large premium increases, individual market insurers saw significant improvement in loss ratios, averaging 75% 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.2 Though 2017 annual loss ratios are therefore likely to end up higher than 75%, this is nevertheless a sign that individual market insurers on average are on a path toward regaining profitability in 2017.



Posted by at July 14, 2017 10:30 AM

  

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