Report Calls 2017 the Best Year Ever for Health Insurers, Despite Changes

An analysis from the Kaiser Family Foundation (KFF) of the 2017 financial performance of health insurers found that last year was their best year selling individual-market health insurance since the Affordable Care Act (ACA) was put into place, even without the cost-sharing subsidies that they lost in the fourth quarter.

The findings suggest that insurers, on average, priced their plans adequately last year, the report said. The analysis is based on insurer-reported financial data, including information from the National Association of Insurance Commissioners.

KFF used 2 different financial indicators to come up with their findings:

• The average share of health premiums paid out in claims, also known as the medical loss ratio, fell to 82% in 2017 from 96% in 2016 and 103% in 2015. KFF has said previously that in the first year or 2 of the ACA, insurers had very little information to work with about the population they would be covering and did not price their premiums accordingly.
• Average premiums collected in excess of claims (or gross margins) reached $79 in 2017 per member per month, up from $14 in 2016 and —$9 in 2015. Positive margins do not necessarily translate into profitability because they do not account for administrative expenses, KFF said.

In addition, premiums per enrollee grew 22% from 2016 to 2017, while per person claims grew only 5%, further helping profitability.

The ACA required insurers to guarantee access to coverage for patients with pre-existing conditions and cover those conditions in the early years of the law in 2014 and 2015. Previously, before the ACA, insurers could excude coverage and services for people with pre-existing conditions, which was a less expensive way of doing business.

KFF said 2018 and 2019 presents new challenges, given changes made during recent months by the Trump administration, including:

• The decision to stop making cost-sharing subsidy payments to insurers effective October 12, 2017. The loss of these payments during the fourth quarter of 2017 diminished profits, but still, insurers saw better financial results in 2017 than they did in the earlier years of the ACA.
• The repeal of the individual mandate penalty as part of the December 2017 tax reform legislation. The repeal will take effect in 2019.
• Proposed regulations to expand loosely regulated short-term insurance plans, which could siphon off healthy enrollees from the ACA-regulated individual market. These changes will increase uncertainty for insurers and likely push premiums higher.

KFF said these changes and political uncertainties are driving up premiums and potentially pricing out healthy consumers.

It is likely that insurers would generally have required only modest premium increases in 2018 and in 2019 as well if the administration had not made these changes, KFF claimed. Insurers are looking to file proposed rates for 2019, and in some parts of the country, individual markets are fragile, with little competition and an insufficient number of healthy enrollees to balance out the unhealthy.