It’s been a tumultuous year for the Affordable Care Act (ACA). From insurers withdrawing from providing health insurance on government exchanges to spiking premiums in the face of financial losses to Congressional legislation to repeal parts of the ACA, 2017 was a crossroads of sorts for the fate of the health insurance marketplace. Several counties scattered across the country were reporting little to no options for coverage on the Marketplace as insurers only migrated to regions of guaranteed stability. Smaller boutique insurance companies were finding new means of entry, but there remained several hurdles to success. It didn’t seem to be shaping up to be better this year.
However, two reports issued this month indicated that despite the tumult, the ACA health insurance marketplace may be stabilizing, with insurers who are providing plans on the exchanges moving towards making money.
A.M. Best, the world’s oldest and most authoritative insurance rating and information source, believes that 2018 will be a stable year for insurance companies providing policies on government exchanges as part of the ACA. In a new report, the agency this month changed its outlook from negative to stable, stating that “insurers overall have been able to adapt to the pressures from the Patient Protection and Affordable Care Act (ACA) and improve earnings and risk-adjusted capitalization levels.”
The agency says that insurers are recovering from earlier losses from the individual exchange businesses, with the help of higher rate increases and a “narrowing” of provider networks.
Here are some of the reasons why the agency has a more positive outlook for the ACA in 2018:
- Medical cost trends were relatively flat in 2016 and 2017.
- An expected rush for medical treatments and services in 2017 was not produced by the efforts to repeal and replace the ACA.
- Most insurance carriers had already received a sizeable portion of the cost-sharing reduction (CSR) subsidy payment for the year before they were ended in the fourth-quarter of 2017, which minimized the negative impact on earnings. Many state regulators allowed plans to adjust premium rates prior to the open enrollment to avoid a potential negative financial impact.
- The repeal of the individual mandate provision of the ACA does not go into effect until 2019, providing a transition period.
The agency said: “Negative factors continue to impact the industry, but A.M. Best believes that insurers overall have been able to adapt and as a result, does not expect any significant deterioration in market conditions over the next year.”
- A Kaiser Family Foundation (KFF) analysis of premium increases for the first nine months of 2017 echoed A.M. Best’s sentiment, stating that the individual market is stabilizing and insurers are regaining profitability. Here’s why:
- Premium increases in 2017 and simultaneous slow growth in claims for medical expenses were driving recent improvements in individual market insurer financial performance. On average, premiums per enrollee grew 17% from third quarter 2016 to third quarter 2017, while per person claims grew only 4%.
- Data based on claims and utilization suggest that the individual market risk pool is relatively stable, though sicker on average than the pre-ACA market. Data on hospitalizations also suggest that the risk pool is stable on average and not getting progressively sicker.
- Some insurers have exited the market, but others have been successful and expanded their footprints.
Signups through the federal marketplace during the recently completed open enrollment period were higher than many expected.
Both reports noted that political actions could change their prognosis of a stable healthcare market in 2018. As KFF cautions “…continued policy uncertainty and the repeal of the individual mandate as part of tax reform legislation complicate the outlook for 2018 and beyond.”
