There was always an assumption that the Affordable Care Act would need time to find its sea legs. That’s why it included measures to shield insurers from the potential profit losses that inherently come with offering millions more people better health coverage at more reasonable prices. Insurers operate on profit margins and the ACA took that into account, for better or for worse.
But it’s still been a rocky road for insurers. (Insert argument here for single-payer health care, but that’s a different story.) On the patient side, with 20 million more Americans insured and growing accounts of lives saved and diseases healed, the story is mostly success. But for insurers — who, like it or not, remain the middlemen between people and medical care — predicting how a completely transformed health care market would work proved difficult. What was the financial sweet spot for pricing products in a market where all the rules had changed and companies could no longer deny coverage to people with pre-existing health problems?
Insurers would have to take their best guess and expose themselves to financial risk. Hence, ACA provisions like “risk corridors,” in which the feds reimburse insurers for certain losses if they participate in the new insurance exchanges. In fact, measures like this are actually called “premium stabilization programs” precisely because the law’s designers knew it would take time for insurers to find a profitable footing in the ACA marketplace. As it turns out, that time might be just around the corner, as long as President Trump and Republicans in Congress don’t make moves to undermine the law’s success.
In a report released earlier this week from the Center on Budget and Policy Priorities (CBPP), Aviva Aron-Dine, a senior fellow at the center, reports that new data from Standard and Poor’s (S&P) Global Ratings, as well as earnings announcements from health plans, “show that major individual-market insurers made significant progress toward profitability in 2016.” Aron-Dine writes:
With sizable premium increases in place for 2017, the S&P analysis concludes these insurers have now largely recovered from initial underpricing for the Affordable Care Act marketplaces, and their individual-market premiums are now generally in line with costs. The new analysis is consistent with other evidence that insurers are on track to break even or earn profits this year, and the ACA marketplaces are on track for smaller annual rate increases and growing competition going forward. But the S&P analysis — as well as recent statements from state insurance commissioners, health plans, hospitals, business leaders and others — also emphasize that this progress could easily be reversed if the Trump Administration continues to sabotage the individual market.
At first, according to the report, insurers on the new ACA individual market were losing financially, experiencing large losses in 2014 and 2015. In trying to predict how the market would behave, insurers often priced their premiums too low to cover costs. For instance, in 2015, insurers decided to raise premiums by an average of 2 percent, despite not having complete 2014 data. In 2016, with a better understanding of the new market, premiums went up a lot more, about an average of 8 percent.
Using numbers from the National Association of Insurance Commissioners, S&P analyzed data from nonprofit Blue Cross Blue Shield insurers, which covered more than a quarter of the individual market in 2016. Aron-Dine noted that in most instances where’s there only one ACA insurer in a county or state, that insurer is Blue Cross Blue Shield, and “so the S&P analysis captures the financial performance of the insurers that may be most critical to ensuring that customers nationwide continue to have marketplace options.” That S&P analysis not only found health plans reduced their losses in 2016, but earned gross profits. Specifically, gross losses went from 2 to 6 percent of premiums in 2014 and 2015, respectively, to gross profits of about 8 percent of premiums in 2016.
And the outlook for 2017 is good, too. Aron-Dine writes that “many nonprofit Blues plans are now sustainably priced and should be on track to at least break even, net of administrative costs, this year.” That “sustainably” part is important because it underscores other expert conclusions that the big premium hikes of 2017 were part of an ACA adjustment phase, not necessarily a sign of things to come. It’s also important to note that federal ACA subsidies adjust in accordance with premium hikes and so many — but certainly not all — marketplace consumers have been protected from more burdensome out-of-pocket coverage costs.
According to the CBPP report, the S&P analysis found that most of the Blue Cross Blue Shield plans that broke even or made money in 2014 and 2015 generally continued to make profits in 2016. Some plans that did experience financial losses in 2014 and 2015 ended up making profits in 2016. For instance, a Blue Cross plan in Alaska announced $20 million in ACA market profits after two years of losses. And most plans with the “deepest” losses in 2014 and 2015 have greatly reduced those losses since. For example, S&P found that Highmark, the only insurer in parts of West Virginia, reduced losses by 31 percent of premiums.
The big takeaway: ACA insurers are finding a secure footing in the new marketplace, premiums have come in line with costs, and future premium increases shouldn’t be nearly as big as they were in 2017. Unfortunately, Trump could easily shatter that stabilization, as he has suggested doing. In an interview with the Wall Street Journal earlier this month, Trump threatened to withhold the federal subsidies that enable low-income Americans to buy coverage — and that enable insurers to remain profitable — to force Democrats to the negotiating table.
The move would put the health of millions at risk and create huge uncertainties for insurers just as the ACA marketplace is becoming more stable and predictable. In the CBPP report, Aron-Dine uses the word “sabotage” to describe the abrupt elimination of subsidies and, frankly, there’s no other more accurate way to describe it.
“The data are increasingly clear: the Trump Administration inherited an individual market that, far from ‘imploding,’ is poised for greater price stability and increased competition going forward,” Aron-Dine wrote. “The decision about whether to capitalize on that opportunity or sabotage it rests with the administration.”
For a full copy of marketplace report, visit CBPP.
Kim Krisberg is a freelance public health writer living in Austin, Texas, and has been writing about public health for 15 years. Follow me on Twitter — @kkrisberg.