Pricing uncertainty drove insurer losses in ACA's first full year

Due to uncertainty in how to price their products, some health insurers lost money on their Affordable Care Act plans in the first full year of the ACA, yet many of those losses were offset by the reinsurance program, according to a brief from The Commonwealth Fund.

Actuaries in charge of forecasting insurers’ financial performance faced tremendous uncertainty with the advent of the ACA, so medical claims came in 5.7 percent greater than projections across the market in 2014, the brief notes.

On a per-member-per month basis, claims were $429, an unpleasant surprise given analysts estimated $406. Roughly 25 percent of insurers ended up paying claims 35 percent above their estimates, yet the market average was only a 6 percent underestimation.

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After factoring in reinsurance credits, insurers’ net claims in the individual market were $386 per member per month, just $9 higher than projections.

Insurers saw revenue collected from premiums in the individual market jump 87 percent from 2013 to 2014, a $27.8 billion increase. In small- and large-group markets, however, premiums fell 3.6 percent. 

UnitedHealth’s exit from most ACA marketplaces shows that individual markets can be brutal for some health insurers. Yet “all well-functioning markets have winners and losers, so it should be no surprise that some health insurers failed to succeed in the ACA’s reformed market,” The Commonwealth Fund notes. 

Now more than two years into implementation of the ACA, insurers will have better data on the individual market to better price their coverage plans moving forward, the brief says.

Market stabilization is expected, as more people transition from grandfathered plans and other temporary into ACA-compliant coverage. The report also suggests policymakers take a second look at extending the ACA’s reinsurance program.

- read the report here