Insurer finances point to stabilizing individual market, but challenges remain

Financial market data. Image: Pixabay
Health insurers' individual market financial performance is on the upswing, but much will depend on what transpires this year.

After a rocky first two years, health insurers’ financial performance in the individual market showed signs of improving in 2016, according to a new analysis.

However, that may not be enough to convince insurers to participate in the Affordable Care Act exchanges long-term amid the myriad challenges and uncertainty they face.

The analysis, conducted by researchers from the Kaiser Family Foundation, used insurer-reported financial data for both on-exchange and off-exchange individual market plans to look at the average medical loss ratio (MLR) from 2011 through 2016 as well as the average gross margins per member per month.

Here’s what they found:

  • MLRs in the individual market averaged 98% in 2014, the first year of the ACA exchanges, after averaging 84% the year before. By 2015, they worsened further, averaging 105%
  • Average MLRs fell to 96% in 2016—a positive sign—though the analysis noted that this is still higher than pre-ACA levels and “would need to fall further for the industry as a whole to be profitable in this market”
  • Average gross margins per member per month, meanwhile, fell from $37.20 in 2013 to $6.54 in 2014, and dropped to -$10.17 in 2015. In 2016, though, they improved to an average of $13.54

Insurers’ financial performance in the individual market could continue to improve this year, the analysis noted, since enrollment in ACA marketplace plans has remained relatively steady and many plans have raised premiums considerably. But that will only be the case if claims costs don’t rise dramatically.

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Plus, even if the individual market continues to stabilize, insurers have reason to be leery given uncertainty about the timing of an ACA repeal, enforcement of the individual mandate enforcement and funding for the cost-sharing reduction program.

A recent report from ratings agency Standard & Poor’s, which analyzed the MLRs of Blue Cross Blue Shield plans, came to a similar conclusion as the KFF researchers. While the individual market showed signs of stabilizing in 2016 and is not in a “death spiral,” it said, most insurers need another year or two of improvements to reach their target profitability levels.