White House report: Health insurers see profits boom under ACA, even as premiums rise

Health insurers are facing new scrutiny for large profit margins during times of high premium increases and costly Medicaid expansions. 

In a new report, the Council of Economic Advisers, an agency within the executive office, said health insurers are doing just fine in the finance department despite initial losses when key provisions of the Affordable Care Act first took affect.

The council said health insurer profitability is currently booming due to substantial premium increases, government premium tax credits and Medicaid expansions.

"The Affordable Care Act created new opportunities for insurance companies by subsidizing the purchase of health insurance and expanding eligibility for subsidies," the council said in the report.

Health insurers' stocks have strongly outperformed gains in the S&P 500 since the ACA's main provisions began taking effect in 2014. Stock prices of health insurance companies rose by 272% from January 2014 to 2018, resulting in improved profitability and surpassing S&P gains by 106%, according to the report. 

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The council noted that insurance companies initially struggled to make a profit in the post-ACA individual and small group markets due to uncertainly regarding how to price insurance with new ACA requirements such as the expanded minimum essential benefits requirement.

The White House also said last year's tax overhaul has helped insurer profitability. Some of the largest health insurers expect net income to increase between 8.7% and 19.6% in 2018 over the previous year, due in large part to the tax cuts, according to the report.

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The council also called the ACA marketplace "distorted" and said it involves "large transfers from taxpayers" to payers.

"Large insurers, many of whom left the individual market, are profiting from the Medicaid expansion," the report said.

The report could be used by the administration to bolster further regulatory reforms to the ACA, including expanding Medicaid work requirements and continuing to withhold cost-sharing subsidies.