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Individual insurance market performance in 2017

Concerns over the stability of the individual insurance market under the Affordable Care Act (ACA) were raised last year following the withdrawal of several insurers from the foreign exchange markets for 2017 and again last year during the debate on the repeal of

To summarize, we review the recently published 2017 annual financial data to see whether the recent premium increases were sufficient to bring the insurer's performance back to pre-2014 levels when the new ACA insurance rules came into force. This new 2017 data provides further evidence that insurers are regaining profitability in the individual market, even if political and political uncertainty, abolition of the individual mandate penalty under the tax reform legislation and proposed rules for the expansion of casually regulated short-term insurance forecasts cloud Expectations for the future.

Analysis: Single-market insurers had their best financial year in 2017 as ACA provides a guarantee for persons with pre-existing conditions, but forecasts are uncertain

The annual financial data reflect insurers' performance from 2017 to December last year. The administration suspended payments for co-financing subsidies with effect from 12 October 2017. The loss of these payments in the fourth quarter of 2017 reduced insurers' profits, yet insurers saw better financial results in 2017 than in previous ACA years. The markets in parts of the country remain fragile, with little competition and an insufficient number of healthy initiates to make up for the sick. However, in the absence of any policy changes, it is likely that in 2018 and 2019 insurers would generally have requested only small increases in premiums. Insurers are now beginning to submit proposed rates for 2019.

We use financial data reported by National Association of Insurance Commissioners insurance companies and compiled by Mark Farrah Associates to look at average premiums, claims, medical loss ratios, gross margins, and 2011-2017 usage in the individual insurance market. These figures include coverage purchased through the ACA exchanges and ACA-compliant plans acquired directly from insurers outside the marketplaces (which are part of the same risk pool) and individual plans originally acquired prior to ACA's entry into force.

Medical Loss Ratios

As we noted in our previous analysis, the insurer's financial performance relative to loss ratios (the proportion of health premiums paid out as contributions) worsened in the early years of the Affordable Care Act, but improved lately . This is to be expected, as the market underwent significant regulatory changes in 2014 and insurers had very little information to set their premiums and even entered the second year of the stock exchanges.

Loss rates began to decline in 2016, suggested improved financial performance. After a relatively high premium increase, the individual market insurers were able to significantly improve the loss ratios in 2017, averaging 82%. Although the annual loss ratios for 2017 are affected by the loss of cost sharing grants over the last three months of the year, this is nevertheless a sign that market insurers are starting to stabilize on average in 2017 and that premium income is more in line with claims costs

Figure 1: Average Individual Medical Loss Rates, 2011 – 2017


Another way to look at the financial performance of a single market is to examine the average gross margins per member per month or the average amount the premium income exceeds the cost of the claims per insured in a given month. Gross margins are an indicator of performance, but positive margins do not necessarily lead to profitability as they do not take into account administrative costs.

Figure 2: Average individual gross margins per member per month, 2011 – 2017

Looking at gross margins, we see a similar pattern to what we see when looking at loss ratios, where insurers' financial performance improved dramatically until 2017 (to 79%) US $ per participant, from a recent low for the year of – US $ 9 in 2015). These data suggest that insurers in this market are on track to reach individual performance levels before ACA and that insurers are now generally gaining in the individual market.

Underlying Trends

Recent improvements in individual market insurers' financial performance are the increase in premiums in 2017 while slow growth in claims for medical expenses. On average, premiums per insured increased by 22% from 2016 to 2017, while per-capita claims increased by only 5%.

Figure 3: Average monthly premiums and claims per person, 2011 – 2017

Concern for rising premiums On the individual market, the question was whether healthy insured persons would leave the market in large numbers rather than paying higher prices , While the vast majority of Exchange participants are subsidized and protected against premium increases, those who register off-board should pay the full increase. As average claims costs rose slowly over the course of 2017, it does not seem that the insureds who were on the market last year were significantly sicker than in the first few years of the introduction of ACA

Hospital was similar in 2017 to inpatient care Days in the last two years.

Figure 4: Average individual market monthly hospital patients days per 1,000 enrollees, 2011 – 2017

In summary, these data indicate claims and usage that the person's market risk pool is relatively stable, although on average sicker than the one before the ACA Market, which is to be expected, because people with pre-existing conditions have access to cover under the ACA.


Annual Results 2017 The single market should stabilize and the insurers in this market would regain their profitability. The insurer's financial performance until 2017 – following the administration's decision not to pay any more for the shared-cost subsidy and before the individual mandate penalty for the tax reform comes into force – showed no signs of a market slump. The 2017 annual claims and claims support the assumption that premium increases in 2017 were required as a one off market correction to achieve a lagged pool of expected risk. Although individual market participants are on average sicker than the pre-ACA market – which is expected to be when people with pre-existing conditions have access to insurance – data on hospitalization in this market indicate that the risk pool was stable on average and did not always get sicker , Some insurers have left the market in recent years, others have been successful in expanding their footprint as would be expected on a competitive market.

While the market stabilized on average, some areas of the country remained more fragile. In addition, political change has the potential to destabilize the individual market in general. The administration's decision to discontinue subsidies for cost sharing prompted some insurers to leave the market or demand larger premium increases than they would otherwise. For some parts of the country, there was a risk of not having an insurer in exchange in 2018, although new entrants or expanding insurers have now moved in to cover all areas at risk of being empty. Notifications of the federal market during the recent open registration period declined somewhat, but were higher than many expected, which could help keep the market stable. However, the lifting of the individual mandate as part of the tax reform laws will come into force in 2019, coupled with the likely expansion of loose-regulated short-term insurance plans that could deprive healthy insureds of the ACA-regulated single market. These changes will increase uncertainty for insurers and likely increase premiums.


We analyzed insurer-reported financial data from Health Coverage Portal TM, a market database managed by Mark Farrah Associates, which provides information from the National Association of Insurance Commissioners. The dataset analyzed in this report does not include NAIC plans licensed as life insurance or California HMOs regulated by the California Department of Managed Health Care. Overall, the plans in this dataset represent at least 80% of the single market. All figures in this release refer to the entire health insurance market, including the major health insurance products sold both on and off-line. We excluded some plans that had filed negative enrollments, awards, or claims and corrected them for plans that did not have "months of membership" in the annual statement, but did not issue membership in the current year.

To calculate the weighted average loss ratio across the individual market, we split the market-wide amount of claims accrued to the sum of all earned health insurance premiums. Medical damage ratios in this analysis are simple loss ratios and do not fit for quality improvement expenses, taxes, or risk program payments. The gross margins were calculated by subtracting the sum of all claims incurred from the sum of earned health insurance premiums and dividing by the total number of months of membership (average monthly enrollment) in the individual insurance market.

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