The Kaiser Family Foundation (KFF) has recently released a study that shows that the ACA market might be stabilizing. The study compares previous marketplace years to the 2017 1st quarter numbers. In this article, I would like to look at the report from the KFF and break down its findings.
Loss Ratio Decline
In the report from KFF, medical loss ratios are beginning to decline. Loss ratios began to decline in 2016, which suggests improvement in financial performance. In 2017, following relatively large premium increases, the individual market insurers saw a significant improvement in loss ratios. There was an average of 75% in the first quarter. Loss ratios are likely to end up higher since this only considers the first quarter only. It is important to note that annual loss ratios tend to move in a similar pattern as the first quarter. If the pattern continues through the selling season we are looking at an even lower decline in the loss ratios.
Gross Margins Increase
The Kaiser foundation’s report also looks and examines the average gross margins per member per month. That is the average amount by which premium income exceeds claims costs per enrollee in a given month. When looking at the report for gross margins, it showed a similar pattern as the loss ratios, where insurer financial performance improved dramatically in the first quarter of 2017 (increasing to $99 per enrollee, from a recent first-quarter low of $36 in 2015). With these type of numbers in the data, it suggests that the marketplace is on track to reach pre-ACA individual market performance levels.
Although the market seems to be doing well, there are underlying concerns about the data. One concern was about rising premiums in the individual market. This depends on whether healthy enrollees would drop out of the market in large numbers rather than pay higher rates. The average claims costs grew very slowly in the first quarter of 2017. It is important to remember that it does not appear that the enrollees today are noticeably sicker than last year, which means premiums might not rise much more. The data also showed that the number of days people have spent in the hospital is relatively the same as previous years. The data collected suggest that the individual market risk pool is relatively stable.
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