KFF: Individual market insurers remain profitable in Q1, but long-term outlook murky

Stack of health insurance application forms with stethoscope on top
A new analysis shows individual market plan issuers have maintained profitability in the first quarter of the year. (Getty/vinnstock)

Insurers on the individual market remained profitable in the first three months of 2020 despite the onset of the novel coronavirus pandemic, thanks in part to the declines in routine care and elective procedures, a new analysis finds.

The analysis, released Monday from the Kaiser Family Foundation, finds gross profit margins are up in the first quarter of the year, but it remains unclear how COVID-19 will affect premiums for the marketplace.

“Most insurers have said they expect the pandemic to have complex effects on premiums, but many do not yet have a specific estimate of how much premiums might change due to COVID-19,” the analysis said.

Gross profit margins show that individual market insurers’ performance improved in the first quarter compared to a dip in the same period in 2019.

In the first quarter, there was an average gross margin per member per month of $156, compared to $134 in the same period in 2019. The gross margin is similar to the $155 per member margin in the first quarter of 2018.

“These data suggest that insurers in this market remain financially healthy, on average, even while the coronavirus outbreak emerged during the first three months of 2020,” Kaiser said.

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A main reason insurers have maintained profitability is major declines in utilization. Some insurers have voluntarily waived cost-sharing for COVID-19 treatments, and some in the individual market have seen high claims costs for testing and treatments.

“However, insurers have also seen claims fall for elective procedures and routine care,” Kaiser said. “On net, claims per enrollee grew by only 3% on average, while per-person premiums grew by 7% during first quarter 2020 relative to the same period last year.”

Average physician encounters among customers on the individual market also declined in the first quarter, with 484 encounters per 1,000 enrollees. That is a dip from 548 encounters for the first quarter of 2019.

The profitability on the individual market mirrors other insurance markets such as commercial plans. Experts warn, however, of a potential wave of deferred care as shelter-in-place orders get relaxed in some parts of the country.

As profits grow on the market, insurers should brace for an influx of new customers due to massive job losses because of the pandemic.

RELATED: Insurers should prepare for 'volatile' individual market due to COVID-19 pandemic: study

An estimate from consulting firm Avalere found that enrollment on the Affordable Care Act’s insurance exchanges, which are part of the individual market, could balloon by more than 1 million people as laid-off workers look for new insurance options.

The analysis comes as more insurers are starting to reenter the exchanges after departing a few years ago due to mounting financial losses.

Kaiser’s analysis is based on financial data reported by the National Association of Insurance Commissioners and compiled by Mark Farrah Associates.