Individual insurance market remains stable in Q1: analysis

Health insurance form payer plan enroll
Insurers continued to make a slight profit in the first quarter of 2019. (Valeriya/Getty)

With premiums falling slightly on average in 2019, insurers have seen a small decline in their margins in the first quarter of 2019.

Still, a recent analysis suggests that the individual insurance market remains stable and insurers are generally profitable, despite the repeal of the Affordable Care Act’s individual mandate penalty and expansion of loosely regulated short-term plans.

A new KFF analysis looks at the state of the individual insurance market in the first three months of the year, and the first in which the ACA's individual mandate penalty is no longer in effect.

At the beginning of 2019, insurance premiums fell slightly and, the analysis found, may have dropped further if it were not for two major policy changes: Congress’ decision to reduce the individual mandate penalty to $0 and the new rules allowing more loosely regulated short-term plans to compete with ACA coverage.

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The latest KFF analysis looked at financial data from insurance companies starting in the first quarter of 2011 through 2019. And even as premiums dropped for the first time since 2014, the individual market remained profitable.

"To some extent, it’s surprising just how resilient the individual market has been, despite policy changes in 2018 and the new challenges brought by the elimination of the individual mandate penalty and expansion of short-term plans in 2019," Rachel Fehr, a research assistant at KFF, told FierceHealthcare. "We’ll learn more about how those factors affect insurers’ profitability over the course of the year."

In 2018, insurers raised premiums by an average of 34% in response to the Trump administration’s policy change to stop cost-sharing subsidy payments and reduce funding for outreach. So these premium hikes, along with slow claims growth, made 2018 the most profitable year for insurers since the ACA was implemented.

Looking at a previous analysis by KFF, insurers’ financial loss ratios—the share of health premiums paid out as claims—were worst in the early years of the ACA but have since improved. As loss ratios continued to fall in 2018, insurers were not able to justify premium hikes for 2019, so the loss ratio for the first quarter of 2019 rose 73%.

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Therefore, analysts can predict the outcome of loss ratios for the entire year. It seems 2019 annual loss ratios are likely to end up higher than 73%, a sign that individual market insurers are on a continuing path toward sustained profitability.

The KFF analysis also looked at the average amount, per enrollee, by which premium income exceeds claims in a given month. Insurers’ financial performance declined slightly from the first quarter of 2018 to 2019, but margins were still higher than all other previous years.

If the year continues on this trend, margins are unlikely to end as high as they are in the first quarter, but insurers in the market remain, on average, financially healthy.

Looking at specific companies, Blue Cross Blue Shield (BCBS) affiliated insurers had consistently higher gross margins in the market than other insurers. And this gap has widened each year from 2015 through 2018, reaching a peak difference of $113. In the first quarter of 2019, total premiums per person are higher for BCBS insurers and claims costs are slightly higher.

But the gap seems to be narrowing in early 2019. BCBS insurers have seen a decline in gross margins, while other plans continue to see margins increase.

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On average, premiums per person fell 0.4% from the first quarter of 2018 to the first quarter of 2019, but per-person claims grew 5%. This growth in claims suggests that recent policy changes did not cause as many healthy enrollees to leave the market as some analysts initially feared.

Altogether, the data suggests that the individual market pool is relatively stable, despite the repeal of the individual mandate penalty and the expansion of short-term insurance plans.

Moving forward, insurers are beginning to file proposed rates for 2020. So far, insurers are requesting premium increases ranging from an average 3% decrease in Maryland to a 13% increase in Vermont.

"Texas v. Azar, a court case that could invalidate the entire ACA, is a major source of uncertainty that could impact 2020 premiums," Fehr said. "The effective repeal of the individual mandate may also continue to put upward pressure on premiums for 2020, though these impacts will be smaller than they were in 2019 when the repeal first took effect. Overall, we expect 2020 premium increases to be modest since insurers are still in a good financial position, on average."