Mark Farrah: Individual health insurance market seeing improved profitability
Individual Segment Findings
There's no denying the Individual health insurance market has endured its fair share of challenges. In order for this segment to be sustainable there must be adequate membership and a balanced risk pool, slow growth in healthcare spending while maintaining quality of care and enough health insurer participation and plan offerings to bolster consumer choice. The volatility of the Affordable Care Act's (ACAs) exchange program forced many insurers to significantly raise premiums to make up for financial losses due to imbalanced risk pools, or withdraw from the exchanges altogether. In 2016, insurance premiums exceeded medical care costs for many insurers; however, segment profitability was still elusive to most plans. MFA's assessment of mid-year 2017 profitability for the Individual market indicates improved overall results.
For second quarter 2017, premiums earned increased 8.6% while medical expenses incurred decreased 6.1% from second quarter 2016. While these changes are significant, they do not tell the full story due to the 11% decrease in individual enrollment between 2016 and 2017. On a PMPM basis, which accounts for changes in membership, premiums increased 21%, significantly outpacing the 4.7% increase in health care services (medical expenses) incurred. Through the first two quarters of 2017, the average medical expense ratio for this segment was 77%, as compared to 89% the previous year. All of the top five health plans in the Individual segment reported improved medical expense ratios as of the end of 2Q17.
As a reminder: The ACA's 80/20 Medical Loss Ratio rule requires carriers to pay back anything higher than 80% to the enrollees as a credit, spread out over a 3 year rolling average. It's also important to note that while this data makes it look like the average carrier is well below the 80% mark, this is only for the first half of the year; the third (and especially 4th) quarter could be worse as people try to squeeze in medical procedures before their annual deductible resets.
...For a market that has historically faced financial challenges, even before the onset of the Affordable Care Act, current year results are indicating an overall trend toward profitability. However, double digit annual increases in premiums are not sustainable, and it is clear that change is needed in the segment. How much of this change will be driven by federal and state action is currently a hot topic in Washington D.C. As health insurance companies continue to keep a close eye on their market performance and the remaining exchange insurers prepare for open enrollment beginning November 1, 2017, the future of this health insurance segment will remain uncertain.
MFA includes tables and data for the other segments of the market as well...and interestingly, the individual market seems to be performing bettee on the MLR front than the Employer (81.8%), Medicare (85.7%) or Medicaid (91%) segments for the first half of the year. Hmmmm...