Companies selling individual policies in the federal health insurance markets recorded strong financial performance last year, according to a new analysis from the Kaiser Family Foundation.
“Annual results from 2018 suggest that despite significant challenges and recent enrollment declines, insurers in the individual insurance market are now generally profitable,” Cynthia Cox, Rachel Fehr and Larry Levitt wrote. “Insurer financial results from 2018 … reveal the most favorable year in the ACA-compliant market’s history.”
The strong results were driven in part by a big increase in premium prices in 2018, spurred by considerable uncertainty about the effects of Trump administration’s efforts to undermine the Affordable Care Act, the report said. Potentially problematic issues included the enforcement of the individual mandate, the payment of cost-sharing subsidies, the reduction in outreach spending and the possibility that the ACA would be revoked entirely.
As it turns out, the markets were more stable than some analysts had predicted, and the premium hikes were more than enough to cover increased costs. Average premiums per enrollee rose by 26% but claims rose by just 7%, boosting average gross margins to a record $167 per enrollee (see the chart below).
In the wake of this sharp uptick in profitability, insurers are expected to pay roughly $800 million in rebates to more than 3 million enrollees. The ACA’s medical loss ratio standard requires most insurance companies to spend at least 80% of their premium income on health care and pay refunds to enrollees if profit, marketing and administrative expenses exceed 20%.
The bottom line: The report concludes that while “markets in some parts of the country remain more fragile, the individual market on average is becoming more profitable. Some insurers have exited the market in recent years, but others have been successful and expanded their footprints, as would be expected in a competitive marketplace. … While signups through the marketplace during the 2019 open enrollment period declined somewhat compared to 2018, financial results suggest the market is still stable and sustainable.”