The U.S. ACA Individual Market Showed Progress In 2016, But Still Needs Time To Mature
07-Apr-2017
The numbers are in. In line with S&P Global Ratings’ forecast, 2016 was a marked improvement for most U.S. Blue Cross Blue Shield (Blues) insurers’ operating performance in the Affordable Care Act (ACA) individual market. But target profitability is still a couple of years away.
Looking forward, we expect insurers, on average, to get close to break-even margins in this segment in 2017. But 2018 and beyond are still uncertain given potential legislative changes to the U.S. health insurance market and the pending legal battles over the cost-sharing reduction (CSR) subsidy. If the market continues unaffected, with a few fixes rather than an overhaul, we expect 2018, or Year 5 of the ACA individual market, to be one of gradual improvement with more insurers reporting positive (albeit low single-digit) margins. But if there are significant changes to the individual market, or if CSRs are made null and void, the market essentially has to restart with a new set of rules.
Overview
- The U.S. ACA individual market shows signs of improvement, as most insurers’ 2016 results were better than 2015 results.
- But the market is still developing and will need a couple more years to reach target profitability.
- 2016 results and the market enrollment so far in 2017 show that the ACA individual market is not in a “death spiral.”
- However, every time something new (and potentially disruptive) is thrown into the works, it impedes the individual market’s path to stability.
Other than operating performance, a key area of focus for the individual market is insurers’ participation in the ACA marketplace (exchanges). Based on recent exit announcements, states like Tennessee and Iowa may have counties with no insurer on the exchange in 2018. This issue may worsen if the uncertainty around market rules and subsidies isn’t clarified sooner rather than later. Insurers need to file their initial rates and products for 2018 in May and June of this year. Having them decide without adequate information may result in either higher-than-expected premium rate increases, or a few insurers hesitating to remain in the market.
