Despite high premiums and diminished consumer choices that might deter consumers from enrolling in Obamacare, a new financial analysis concludes that the individual health insurance market has shaken off its early losses and will likely break even this year.
The analysis by S&P Global Ratings of the performance of scores of Blue Cross plans in nearly three dozen states also predicts that insurance companies providing millions of Americans with subsidized coverage under Obamacare will begin showing modest profits in 2018.
The Standard & Poor’s report describes a “fragile” market that has begun to stabilize after a shaky launch in 2014 and that appears on the road to profitability in the coming years -- unless Republican lawmakers pull the rug out from under it.
That’s just when President Trump and House Speaker Paul Ryan (R-WI) are hoping to replace Obamacare with a GOP alternative that so far has gained little traction on Capitol Hill. The report warns that any significant overhaul or increased uncertainty over subsidies and other vital aspects of the program may lead to a much different -- and far more negative –result for insurers.
“Our analysis of 2016 results and the market enrollment so far in 2017 shows that the ACA individual market is not in a ‘death spiral,’” the report stated." But it isn't on a stable footing either.” If the market continues on its current course, with a “few fixes” rather than a major overhaul, “We expect 2018 . . . to be one of gradual improvement with more insurers reporting positive (albeit low single-digit) margins,” according to S&P.
While the S&P study focuses on insurer profitability and the likelihood the industry can overcome economic challenges in the coming years, it doesn't speak to the larger question of the impact of rising premiums and deductibles on consumers -- or what can be done to increase access to affordable health care.
The latest Kaiser Family Foundation Tracking Poll found that two-thirds of the public believe it is “a good thing” that Congress didn’t pass the GOP replacement plan while nearly three-fourths of Americans think Trump and Congress should do what they can to make the current system work. Polls also show that, for the first time, a majority of the public favors Obamacare.
The S&P report looked at Blue Cross plans covering about five million of the estimated 8 million people who are covered under Obamacare through 2017.
Since Obamacare was first launched in 2014, an alarming number of major insurers including Aetna, UnitedHealth Group. Humana, Blue Cross-Blue Shield, and Anthem have either pulled out of some states or are threatening to do so after incurring millions of dollars in losses.
And based on recent announcements of more departures by insurers, some states like Tennessee and Iowa may have counties with no insurers on the exchange in 2018. The situation could worsen in the coming months if uncertainty over the future of Obamacare persists, the report says. Insurance companies must file their initial rates and products for 2018 in May and June, and more may decide to pull out of the system if they consider the situation too risky.
“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,” according to S&P.
The report suggests that after several years of turmoil and losses in the Obamacare markets, many insurers are beginning to better understand how the new subsidized individual markets work. Most have made adjustments in premiums and the number of doctors and hospitals in their networks to enhance their profitability.
Among key findings of the report:
- The number of companies whose medical costs exceeded their premiums declined by half to just nine of the 32 Blue Cross companies included in the study. That suggests the potential for improving profit margins in the coming year.
- The sharp rise in 2017 premium rates of as much as 20 percent in some regions didn’t result in a significant drop in Obamacare enrollment as critics predicted. That’s because of the stabilizing effect of the ACA’s income-based premium tax credits that offset increases in premium costs for over 80 percent of enrollees who qualify for the subsidy. Those credits cost taxpayers $32.8 billion in 2016.
- 2018 and beyond are still uncertain in light of potential legislative changes to the health insurance market and the pending legal battle over a $7 billion a year cost-sharing reduction subsidy for insurers that is vital to the future of Obamacare.
- “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,” the report states.