Obamacare Individual Market Profitability Outlook Improving, Says S&P

The Affordable Care Act (ACA) individual market has proven a tough nut to crack for U.S. health insurers, with the benefit of strong premium growth offset by persistent underwriting losses for most insurers. But 2016 is going to be the first year to start reversing the trend, according to an article published by S&P Global Ratings.

The article, The ACA Individual Market: 2016 Will Be Better Than 2015, But Achieving Target Profitability Will Take Longer, said that 2014 was painful for most U.S. insurers in terms of underwriting profitability in the ACA, or Obamacare, individual market, and 2015 only aggravated those losses.

But S&P analysts expect health insurers to report improved underwriting performance in the individual market in 2016 versus 2015. Through the first three quarters of 2016, S&P found that 75 percent of the Blue Cross Blue Shield plans included in its study had a lower year-over-year medical loss ratio.

Although most insurers will still report an underwriting loss for 2016, the losses, on average, will be smaller than in 2015, S&P believes.

“This means the changes made to network design and premium pricing are gaining traction, though more still needs to be done,” said S&P Global Ratings credit analyst Deep Banerjee.

For 2017, S&P expects to see continued improvement, with more insurers reporting close to break-even or better results for this segment. Its 2017 forecast takes into account the impact of a maturing risk pool, premium rate increases, network changes, and regulatory changes such as stricter rules around special enrollment periods.

“But insurers didn’t price for a repeal in 2017,” said Banerjee. So unanticipated consumer behavior, such as higher-than-priced medical service utilization in response to uncertainty around the future of healthcare could throw a wrench in the works.

As for 2018 and beyond, a significant amount of uncertainty remains for the individual health insurance market, says S&P. The timing and specifics of “repeal and replace”– and insurers’ ability to adapt to the changes– will play a pivotal role in influencing their underwriting performance, according to the analysts.

Source: S&P Global Ratings