The Story of the Exchanges

In greater detail, the report reaches two main conclusions about the state of the individual market in 2017 and how the market would have evolved in 2018 in the absence of recent changes in policy:

• Insurers were on track to break even or make modest profits on ACA-compliant policies in 2017, on average, before the administration ended cost-sharing reduction payments: The report estimates that insurers were on track to incur small losses averaging 0.4 percent of premium revenue on ACA-compliant policies in 2017 before the administration ended cost-sharing reduction payments for the final quarter of the year. Furthermore, there is reason to believe that the data used in this analysis may systematically understate insurers’ actual financial performance, suggesting that insurers were, in fact, on track to make modest profits on ACA-compliant policies in 2017, on average nationwide.
• In a stable policy environment, 2018 premium increases for ACA-compliant policies would have been in the mid-to-high single digits on average nationwide: With premiums at an approximately sustainable level in 2017, premium increases for 2018 would only have needed to accommodate underlying cost trends and the expiration of the one-year moratorium on the ACA’s health insurance fee if federal policy toward the individual market had remained where it was at the start of 2017. Taken together, those factors would likely have generated premium increases in the mid-to-high single digits on average nationwide.

It is clear that individual market premiums will increase by substantially more than this in 2018. These larger increases likely primarily reflect the unsettled federal policy environment. During 2017, Congress undertook a lengthy debate over possible legislative changes to the ACA, which included immediate repeal of the individual mandate. The Trump Administration has also repeatedly threatened to take actions that would weaken the individual market, and it has acted on some of these threats, including by ending cost-sharing reduction payments to insurers.

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• The losses insurers incurred on ACA-compliant policies in 2014 are readily explained by a variety of transitional factors: Insurers incurred losses of 5.7 percent of premium revenue on ACA-compliant policies in 2014. As other authors have noted, these losses are comparatively easy to explain. Insurers had limited information about the likely composition of the individual market risk pool when they set 2014 premiums and may have intentionally underpriced in an effort to gain market share in the early years of the new market.
• Insurers’ losses on ACA-compliant policies deepened in 2015 and 2016 because of puzzlingly small premium increases, not rapid growth in claims spending: Insurers’ losses on ACA-compliant policies deepened to between 11 and 12 percent of premium revenue in 2015 and 2016. The deterioration in insurers’ performance was not driven by particularly rapid claims growth. Per member per month claims spending in ACA-compliant plans is estimated to have grown 3.2 percent in 2015 and 1.5 percent in 2016, slower than the claims growth observed in employer-sponsored insurance in these years. Slow growth in claims spending likely reflected a stable or improving risk mix in ACA-compliant plans during these two years, insurer plan design changes aimed at reducing costs, and other factors.

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• In contrast to 2015 and 2016, the premium increases insurers implemented for 2017 were more than sufficient to offset slow claims growth and the final step in the phasedown of the reinsurance program, facilitating the sharp improvement in margins seen in 2017: Premiums in the ACA-compliant market are estimated to have risen by 20.5 percent on a per member per month basis in 2017. Offsetting the final step in the phasedown of the transitional reinsurance program only absorbed 5.9 percentage points of this increase, and data to date imply that claims growth would only have absorbed an additional 2.7 percentage points had cost-sharing reduction payments continued. As a result, this year’s premium increases have allowed insurers to sharply improve the financial performance of their ACA-compliant plans.
• Continued slow claims growth in 2017 shows that the 2017 premium increases did not meaningfully damage the individual market risk pool, consistent with pre-ACA evidence: Some observers argued that the large premium increases insurers implemented for 2017 would drive many healthy enrollees from the individual market, causing large increases in average claims costs that would keep insurers from returning to profitability. In fact, data to date indicate that per member per month claims spending in the ACA-compliant market was on track to rise just 2.7 percent in 2017 if cost-sharing reduction payments had continued.

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Greenbeard said:

The financial story, anyway. It's a story that's been mapped out in bits and pieces along the way. In short:

When the exchanges opened in 2014, premiums were below (by 15%) projections. And even though many insurers' exchange margins were negative that year, premiums stayed low: benchmark premiums only went up 2% for 2015 and 7% for 2016. This period of sustained low-pricing, coupled with a political decision in Congress to muck up the start-up risk mitigation built into the exchanges, set up 2017 to see a premium bump. And indeed last year S&P was predicting a "one-time pricing correction" in the exchanges in 2017. Which in fact happened: 2017 saw the first double-digit jump in benchmark premiums (22% on average).

The results: analysis by S&P and KFF indeed showed substantial improvements in performance on individual market business this year as a result. By 2017 the exchanges had just about gotten to profitability--more-or-less on the three-year start-up schedule envisioned by the ACA. What should've happened going into 2018 is where the story diverges: had we kept on the same path, the 2017 correction would've been a one-time blip (as insurer rate filings for 2018 have since showed), but unfortunately a number of deliberate actions by the current administration and Congress have instead generated huge (and hugely avoidable) premium increases for 2018.​

Brookings is out today with a good drive into the financial data ("Taking Stock of Insurer Financial Performance in the Individual Health Insurance Market Through 2017") laying out the picture over the past few years. It's the one that had been cobbled together one development (and one thread!) at a time and summarized above but this does an excellent of bringing it all together and backing it up with the data.

Their summary gives a good overview of where the exchanges have been and where they were going:

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backpacker said:

My premium increase was already sent to me and was in the double digits prior to the President's recent actions so I am skeptical of the particular allegation that premium increases would have been in the single digits but for Trump.

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