Market analysts are closely watching the extent to which large premium increases affected 2017 enrollments outside the ACA marketplaces, where no subsidies are available to soften the blow.

April 10—Financial losses by health plans on the government-run marketplaces appear to be declining, but stabilization appears a couple years away, according to a ratings agency’s new analysis.

Insurers’ financial results in 2016 and enrollments in 2017 indicate that the individual-insurance marketplace launched by the Affordable Care Act (ACA) “is not in a ‘death spiral,’” according to an analysis by Standard & Poor’s.

“But it isn't on a stable footing either,” the report said.

S&P reiterated its expectation that the ACA marketplaces will take five years to stabilize—2017 is year four.

“After starting on the wrong foot in 2014, and deteriorating further in 2015, we are seeing the first signs in 2016 that this market could be manageable for most health insurers,” according to the report.

Deep Banerjee, a director at S&P Global Ratings and the report’s lead author, credited the improvement to the market’s maturation, its first big premium increase to match costs, and increasingly restricted provider networks.

“As [plans] have come to understand this market, they realize it’s closer to a Medicaid product than a group product, so accordingly they adjusted the networks,” Banerjee said in an interview.

The report noted that the Blue plans—described by ACA advocates as the backbone of the ACA marketplaces—have struggled financially in the marketplaces. Exceptions include the Florida and New Jersey Blues, which have had financial success.

The report noted that the medical loss ratios (MLRs)—the percentage of premiums that insurers pay out in claims—improved significantly for most Blues in 2016.

The weighted average MLR for the Blues studied by S&P was about 92 percent in 2016, compared to 106 percent in 2015 and 102 percent in 2014.

Robert Laszewski, an adviser to health insurers, noted that the Blues studied by S&P need an MLR of about 90 percent to break even and about 85 percent to reach their profit objectives.

“Using those numbers you can see that things are better but nowhere near acceptable for most plans,” Laszewski said in emailed comments.

The downward trend in insurer losses echoed the findings of a March 9 report from Moody’s Investor Service. That report found that insurers have lost billions of dollars on the ACA marketplaces since 2014, with more than $3 billion in total losses through 2015. However, Moody’s found “losses trending lower in 2016 owing to higher premiums, revised plan designs, and more selective participation by insurers in the exchanges.”

Moody’s traced the ongoing losses to a smaller and sicker enrollee pool than federal officials expected.

The U.S. Department of Health and Human Services (HHS) reported 2016 sign ups on the ACA exchanges was 12.7 million after open enrollment, while the post-open enrollment total dropped to 12.2 million in 2017. Another 10.7 million were eligible in 2016 but not enrolled, even though 84 percent were eligible for subsidies. Nineteen million people either paid the individual mandate penalty or claimed an exemption in 2016.

“Young and healthy individuals have not enrolled in the ACA in large numbers because of cost, and their absence has skewed the risk pool,” the Moody’s report stated.

A March report from Milliman noted that ACA marketplace enrollment “appears to have plateaued.”

Despite enrollment stagnation, “market stabilization and additional data on marketplace enrollees have the potential to aid in improving insurer financial results, facilitated by the implementation of appropriate premium rate changes,” the report stated.

Banerjee noted that an HHS proposed rule to provide market stabilization could further steady the outlook for participating plans.

“We would assume that there would be continuous fixes by [the Centers for Medicare & Medicaid Services] or HHS that will benefit the market compared to complete change that would bring the market back to the first year, basically,” Banerjee said.

Off-Exchange Plans

The S&P report credited the ACA’s premium subsidies for avoiding an insurer death spiral, but no subsidies are available to purchasers of the individual-market plans sold off the ACA marketplaces, Laszewski noted.

“Right now, the biggest concern is the almost half of the Obamacare-compliant market that got the big rate increases and does not get subsidies to cushion them,” Laszewski said. “The carriers are watching very carefully to see what their cancellations will be in the coming months on this block. You can’t say things are stable until we know how this half of the market is reacting.”

Fifty-three percent of all individual-insurance policies sold on and off the ACA marketplace in 2016 did not receive premium subsidies, according to Milliman.

“While these households likely have higher income on average, it is unclear how premium rate increases will impact the insurance participation rate of the unsubsidized portion of the market,” the Milliman report stated.

Banerjee agreed that the industry is closely watching for the first 2017 enrollment reports from the off-marketplace plans because those bear the full burden of premium increases that averaged 23 percent for 2017.

“It is possible, using the same logic of that huge rate increase, that off-exchange could also have seen a decline [in enrollment]; unfortunately, it is too early to get those numbers,” Banerjee said.

Future Outlook

The 2018 outlook for the ACA marketplaces remains uncertain, the S&P report noted, due to potential legislative changes and legal battles over the cost-sharing reduction (CSR) subsidy. The House of Representatives successfully challenged the legality of CSR funding provided without appropriation by the Obama administration, but the case is under appeal. The Trump administration has not decided whether to continue the appeal.

“If the market continues unaffected, with a few fixes rather than an overhaul, we expect 2018, or year five, of the ACA individual market, to be one of gradual improvement with more insurers reporting positive (albeit low single-digit) margins,” the report stated.

However, even that scenario is likely to include an indeterminate number of counties—including in Tennessee and Iowa—with no ACA marketplace insurers.

“It’s still early, maybe they won’t [lack any insurance plan options] depending on how the other insurers behave,” Banerjee said about counties with no insurers.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, April 10, 2017