Insurance companies earned an average of $298 per member in plans offered on the Affordable Care Act (ACA) marketplace in the first quarter of 2017, the best first quarter performance since the exchanges opened.
The Kaiser Family Foundation had previously found insurer financial performance worsened in 2014 and 2015, the first years of the new marketplace, but had showed signs of improvement in 2016. Medical-loss ratios—the share of premiums paid out as claims—averaged 75 percent in the first quarter of 2017, lower than ratios recorded in the first quarters of 2011, 2012 and 2013, before the exchanges were open. While loss ratios for the entire year will almost certainly be higher, the analysis said the early results bode well for insurer profitability on the exchanges in 2017.
“Insurer financial results show no sign of a market collapse,” the analysis said. “First quarter premium and claims data from 2017 support the notion that 2017 premium increases were necessary as a one-time market correction to adjust for a sicker-than-expected risk pool.”
Similar results were seen in other measures of financial performance. Average gross margins per member month was up to almost $100 in Q1 of 2017, compared to $48.13 in the same quarter last year, though this measure doesn’t account for administrative costs.
There was some concern that the double-digit hikes in premiums by exchange insurers would drive away healthier customers. Instead, the analysis found more evidence for the “one-time correction” argument, as premiums per enrollee grew 20 percent, but claims per person only went up 5 percent. The average number of days that individual market enrollees spent in the hospital during Q1 2017 ticked up only 1 percentage point to 24.7 percent.
“Taken together, these data on claims and utilization suggest that the individual market risk pool is relatively stable, though sicker on average than the pre-ACA market, which is to be expected since people with pre-existing conditions have guaranteed access to coverage under the ACA,” the analysis said.
The greater threat to market stability, Kaiser concluded, is uncertainty around cost-sharing reduction subsidies to insurers and enforcement of the individual mandate. Those factors have led some insurers to ask for larger premium increases for 2018 or exit the market altogether, which ACA opponents, like CMS Administrator Seema Verma, have used to argue the exchanges and the law itself are failing.