A.M. Best Special Report: ACA Underlies Changes in U.S. Health Insurance Industry Enrollment, Premium Mix and Earnings

OLDWICK, N.J.--()--The U.S. health care industry’s net premiums written (NPW) increased 88.2% from 2006-2015, driven largely by Medicaid NPW growth of 425.9% and Medicare Advantage NPW growth of 181.3% during that time period, according to a new A.M. Best special report. In particular, the strong growth in the government lines of business was driven by the Medicaid expansion from The Patient Protection and Affordable Care Act (ACA), combined with an aging U.S. population that is now eligible for Medicare.

The Best’s Special Report, titled, “ACA Underlies Changes in Enrollment, Premium Mix and Earnings for Health Industry,” notes how the ACA has changed the dynamics of the health care industry with new benefits, Medicaid expansion, insurance subsidies for those under 400% of the federal poverty level and new rules by the government. Health insurers have seen a shift in business mix to more government-funded programs; however, Medicaid Managed Care (Medicaid) and Medicare Advantage (MA) products usually tend to have a higher loss ratio than other lines of business, as well as lower profit margins. Adding to the margin pressure is the continued conversion of employer groups from fully insured to self-funded on the commercial side.

The individual exchange marketplace business has been plagued with a multitude of issues. This includes a large portion of enrollees that are higher risk and greater utilizers of services, resulting in adverse claims experience; significantly lower risk corridor payments than expected and anti-selection from individuals enrolling via the special enrollment period, as well as a high turnover rate for individuals from year to year.

Overall, the varying levels of growth have led to a shift in premium mix for the industry. Medicaid’s share of total NPW nearly tripled to 25.5% in 2015 from 9.1% in 2006, while MA grew to 24% of total NPW from 16%. Conversely, commercial business, which had accounted for 59.8% of the industry’s NPW in 2006, declined to 39.4% in 2015. Similar to premium trends, total enrollment increased 38.5% in 2006-2015, as MA enrollment grew 137.8% and Medicaid enrollment grew 148.6%. Over the last two years, much of the enrollment growth has been aided by ACA provisions.

The ACA program has produced a negative impact on many carriers’ cash flow due to the timing of payments to the insurers from the government. Additionally, some companies have increased borrowing capacity to maintain sufficient liquidity levels and cash availability. Due to the unprofitable results, many large national carriers have announced they will largely exit the exchange marketplaces. Many of the remaining participating carriers have requested significant rate increases in order to try to improve profitability.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=255802.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Jeffrey Lane, +1 908-439-2200, ext. 5567
Senior Financial Analyst
jeffrey.lane@ambest.com
or
Jason Hopper, +1 908-439-2200, ext. 5016
Senior Industry Research Analyst
Credit Rating Criteria – Research and Analysis
jason.hopper@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
James Peavy, +1 908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Jeffrey Lane, +1 908-439-2200, ext. 5567
Senior Financial Analyst
jeffrey.lane@ambest.com
or
Jason Hopper, +1 908-439-2200, ext. 5016
Senior Industry Research Analyst
Credit Rating Criteria – Research and Analysis
jason.hopper@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
James Peavy, +1 908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com