Individual Insurance Market Performance in Early 2019

The early years of the Affordable Care Act (ACA) exchanges and broader ACA-compliant individual market were marked by volatility. Markets in some parts of the country have remained fragile, with little competition, an insufficient number of healthy enrollees to balance those who are sick, and high premiums as a result. However, by 2017, the individual market generally had begun to stabilize. Despite this growing stability, in 2018 insurers raised benchmark premiums by an average of 34% in response to policy changes such as the Trump Administration’s decision to cease cost-sharing subsidy payments and reduce funding for outreach, and uncertainty over whether the ACA as a whole would remain law. These premium hikes, along with slow claims growth, made 2018 the most profitable year for individual market insurers since the ACA went into effect.

Premiums fell slightly on average for 2019, as it became clear that some insurers had raised 2018 rates more than was necessary. It is likely that 2019 premiums would have dropped even more if not for two major policy changes that put upward pressure on prices: Congress’ decision to reduce the individual mandate penalty to $0 effective in 2019 and the Trump administration’s new rules allowing more loosely regulated short-term plans to expand on the individual market in competition with ACA-compliant coverage. Both of these changes sparked fears that healthy enrollees would increasingly choose to enroll in short-term plans or to go uninsured altogether, leaving the individual market with a sicker risk pool for 2019.

In this analysis, we look at financial data from the first quarter of 2019 to examine how the individual insurance market has responded to these recent changes. 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, and gross margins from first quarter 2011 through first quarter 2019 in the individual insurance market. 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.

These new data from the first three months of 2019 suggest that insurers in the individual market remain profitable, even with average premiums falling for the first time since the ACA was implemented. These data indicate that the individual market appears to be stable so far in 2019, despite the repeal of the individual mandate penalty and the proliferation of loosely-regulated short-term insurance plans.

Medical Loss Ratios

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 ACA marketplaces, but began to 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.

The chart below shows simple loss ratios, which differ from the formula used in the ACA’s medical loss ratio (MLR) provision.1 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, a sign that individual market insurers on average were beginning to better match premium revenues to claims costs. Loss ratios continued to fall in 2018, suggesting that insurers were able to build in the loss of cost-sharing subsidy payments when setting premiums and some insurers likely over-corrected. With such low loss ratios, insurers generally could not justify premium hikes for 2019, and loss ratios for the first quarter of 2019 rose to 73%.

Figure 1: Average First Quarter Individual Market Medical Loss Ratios, 2011 – 2019

First quarter loss ratios tend to follow the same pattern as annual loss ratios, but in recent years have been between 2 and 10 percentage points lower than annual loss ratios.2 Though 2019 annual loss ratios are therefore likely to end up higher than 73%, this is nevertheless a sign that individual market insurers on average are on a continuing path towards sustained profitability.

Margins

Another way to look at individual market financial performance is to examine average gross margins per member per month, or the average amount by which premium income exceeds claims costs per enrollee in a given month. Gross margins are an indicator of performance, but positive margins do not necessarily translate into profitability since they do not account for administrative expenses.

Figure 2: Average First Quarter Individual Market Gross Margins Per Member Per Month, 2011 – 2019

Gross margins show a similar pattern to loss ratios. Insurer financial performance declined slightly from the first quarter of 2018 to 2019, but margins were still higher than all other previous years through 2017. Again, first quarter data tend to indicate the general direction of the annual trend, and while annual 2019 margins are unlikely to end as high as they are in the first quarter, these data suggest that insurers in this market remain on average financially healthy.

Blue Cross Blue Shield affiliated insurers (“Blue insurers”) have consistently had higher gross margins in the individual market than other insurers (“non-Blue insurers”). This performance gap widened each year from the first quarter of 2015 to 2018, reaching a peak difference of $113 in early 2018, but appears to be narrowing again during the first three months of 2019. Total premiums per person are higher for Blue insurers, on average, and claims costs are also slightly higher. While the Blues have seen a decline in gross margins in the first quarter of 2019, other plans have continued to see their margins increase somewhat.

Figure 3: Average First Quarter Individual Market Gross Margins Per Member Per Month, 2011 – 2019 (Blue Insurers vs. Non-Blue Insurers)

Underlying Trends

Following record insurer margins in 2018, premiums per enrollee fell slightly on average for 2019 while claims costs continued to grow at a similar pace to previous years. On average, premiums per enrollee fell 0.4% from early 2018 to 2019, while per person claims grew 5%.

Figure 4: Average First Quarter Individual Market Monthly Premiums and Claims Per Person, 2011 – 2019

One concern about the effective repeal of the individual mandate that took effect for 2019, along with the expansion of short-term plans, was whether healthy enrollees would drop out of the market in large numbers. The still modest growth in claims costs during the first three months of 2019 suggests that these policy changes did not cause as many healthy enrollees to leave the individual market as was feared.

Taken together, these data suggest that the individual market risk pool is relatively stable, though sicker on average than the pre-ACA market, which is to be expected since people with pre-existing conditions have guaranteed access to coverage under the ACA.

Discussion

Results from early 2019 suggest that despite recent policy changes and enrollment declines, many insurers continue to make a profit in the individual insurance market, on average. Premium and claims data support the notion that large 2018 premium increases were in large part compensating for policy uncertainty and the termination of cost-sharing subsidy payments, and some insurers appear to have over-compensated. Thus, insurers could not justify large rate increases for 2019 and premium growth slowed significantly, leading to a slight downturn in insurer performance in early 2019. Continued modest growth in claims costs in early 2019 indicates that the repeal of the individual mandate penalty and expansion of short-term insurance plans did not leave the individual market significantly less healthy.

While markets in some parts of the country, especially in rural areas, remain more fragile with high premiums, the individual market on average appears stable. Some insurers exited the market in previous years, but others have been successful and expanded their footprints, as would be expected in a competitive marketplace. Insurers are beginning to file proposed rates for 2020. So far, insurers are requesting modest premium increases, ranging from an average 3% decrease in Maryland to a 13% increase in Vermont. With a continuing legal battle threatening the very existence of the ACA, significant uncertainties remain. However, earlier concerns that the market would collapse or insurer exits would lead to counties with no coverage available at all have proven unfounded.

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