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Analysis

Health Insurers Rely on Group Coverage Profits to Offset Exchanges

By Gregory A. Freeman  
   January 17, 2018

The individual health insurance market is still a slog for health plans, but health plans remain profitable overall because of their group coverage sales. 

Despite all the talk about how the Affordable Care Act and recent revisions to the healthcare law have challenged health plans to remain profitable on the individual market, insurers are reporting good financial results and are prospering.  

That's because their bread-and-butter business, group health insurance provided through employers, is largely unaffected by the turmoil in the individual market.

More than half of Americans have health insurance coverage paid for by their employers, in whole or in part, and another 40% are covered by Medicare or Medicaid, leaving only around 12% to fend for themselves in the individual market, notes Christina Marsh Dalton, PhD, assistant professor of economics at Wake Forest University's School of Medicine in Winston-Salem, North Carolina.  

That means that even health plans struggling to profit in the individual market can succeed overall, Dalton says.

"All the discussion in the news is about the individual market. This is the piece of the industry that wasn't working and was addressed most directly by the Affordable Care Act, and it's the piece that is undergoing so much change right now," Dalton says. "But for the rest of the country who get their insurance through their employers or Medicare or Medicaid, not a lot has changed for them. That's a stable market and that's where insurers can still be successful."

Stock prices for some of the country's health insurance companies outperformed the rest of the stock market in 2017, despite how efforts to repeal and replace the Affordable Care Act created uncertainty for the industry.

A report from the Kaiser Family Foundation, examining  insurers' financial data from the third quarter of 2017, found that insurers gained ground in their medical loss ratios, which averaged 81% through the third quarter.

They saw similar improvement in gross margins per member per month in the individual market segment, up to $79 per enrollee in the third quarter of 2017. That figure had been as low as $10 in 2015.

"These new data from the first nine months of 2017 offer further evidence that the individual market has been stabilizing and insurers are regaining profitability, even as political and policy uncertainty and the repeal of the individual mandate penalty as part of tax reform legislation cloud expectations for 2018 and beyond," the Kaiser report says.

Gregory A. Freeman is a contributing writer for HealthLeaders.


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