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Best’s Market Segment Report: The ACA Five Years On — Early Struggles Give Way to Strong Performance for U.S. Health Insurers


The U.S. health insurance segment has overcome early issues associated with The Patient Protection and Affordable Care Act (ACA), and in the last two years has posted its highest underwriting and net incomes since the law went into effect at the start of 2014, according to a new AM Best report.

The Best’s Market Segment Report, titled, “The ACA Five Years On: Early Struggles Give Way to Strong Performance for U.S. Health Insurers,” states that the individual business has been substantially more profitable for insurers in the last two years of the ACA than the first three years, with industry net income of $23.2 billion in 2017 and $28.4 billion in 2018, compared with $12.3 billion in 2014. The report notes that despite the poor operating results early on in the individual line of business, other lines of business remained profitable. As a result, although earnings were negatively impacted by the individual ACA exchange business, the majority of health insurers remained profitable.

During the early years of the ACA, health insurers implemented multiple years of corrective pricing actions and benefit design changes. Furthermore, the stability of membership has allowed insurers to successfully enroll individuals in disease management programs, helping turn initial performance woes around. Additionally, the gradual decline in the pent-up demand for health care service among newly insured and an industry trend of lower broad-based utilization the past few years helped further improve results. Underwriting margins in 2017 topped 3% for the first time since 2011, and it remained at that level again in 2018. Performance throughout the industry has strengthened, as the percentage of companies reporting an underwriting loss has declined since 2015. Capital and surplus also has followed a similar pattern, topping $198 billion at year-end 2018.

“Given ever-shifting regulatory rules and seemingly constant lawsuits challenging the legality of the ACA, health insurers have had to contend with quite an uncertain operating environment over the last five years, yet they continued to push forward,” said Sally Rosen, AM senior director.

Other highlights of this report include:

  • A look at different ACA provisions and components and how they have fared since implementation, including the risk corridors program, consumer-operated and -oriented plans and the health insurer fee;
  • The impact of Medicaid expansion, which led to significant premium growth in the initial years of the ACA but has since leveled off; and
  • A timeline and discussion of legal and regulatory challenges, including more-recent developments such as association and short-term, limited-duration health insurance plans.

AM Best expects health care to remain at the forefront of the political conversation as the 2020 presidential elections near. In addition to changes to the ACA, another option likely to be explored is Medicare for All. With health insurance having become a heated political topic, AM Best believes that any new large-scale legislation amending or enhancing the existing ACA on the federal level is unlikely in 2019 or 2020. With the current divided federal government, getting all parties to agree on legislation that would change the ACA is highly doubtful.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=289753.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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