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ACA rebound could see $800 million in rebates

Kaiser study suggests insurers set 2018 premiums too high

Bill Poulson of Cedar Rapids works with Outreach and Enrollment Specialist Ashley Loutsch to enroll in health insurance on the marketplace at the Eastern Iowa Women’s Health Center in Cedar Rapids on Thursday, December 14, 2017. (Cliff Jette/The Gazette)
Bill Poulson of Cedar Rapids works with Outreach and Enrollment Specialist Ashley Loutsch to enroll in health insurance on the marketplace at the Eastern Iowa Women’s Health Center in Cedar Rapids on Thursday, December 14, 2017. (Cliff Jette/The Gazette)

A new report finds that improved profitability for insurers selling Affordable Care Act coverage to individuals last year means health plans could be issuing a record $800 million in rebates to consumers.

The study from the California-based Kaiser Family Foundation suggests insurers overshot when setting premiums for 2018 due to uncertainty over the future of the federal health law, given moves at the time by the Trump administration.

When carriers set premiums in the individual market that are too high, the ACA requires them to pay rebates that effectively cap the amount of money that health plans can keep for administrative costs and profit.

A Star Tribune review of regulatory filings in April revealed two individual market insurers in Minnesota, for example, estimate that they collectively will pay $37 million in rebates, which aren’t yet final.

One of those insurers, Minnetonka-based Medica, sells individual plans in Iowa.

“On average, the market was quite profitable for insurers,” said Cynthia Cox, a program director with the Kaiser Family Foundation.

The prospect of big rebates is the latest of many twists in the individual market under the ACA, which brought sweeping changes to coverage for self-employed people and those under age 65 who don’t get a health plan from their employer.

The individual market has always been relatively small, providing coverage to about 7 percent of all Americans in 2017.

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But it’s received disproportionate attention over the past five years as the ACA blocked carriers from denying coverage to people with pre-existing health conditions.

The ACA provided federal tax credits that subsidize premium costs for many. But they don’t extend to people with incomes that are more than four times the poverty level — a group that saw big premium increases in the market as a result.

Carriers hiked rates from 2014 through 2017 as they tried to catch up with the cost of medical bills that exceeded premium revenue.

Insurers and regulators talk about the relationship between premium revenue and medical claims in terms of the “medical loss ratio,” or MLR, which describes the share of premium dollars that are spent on health care and quality improvement programs.

When an insurer spends less than 80 percent of its premium revenue in the individual market on care and quality, the ACA requires rebates.

The new study from the Kaiser Family Foundation shows that individual market insurers, on average, had a medical loss ratio of 70 percent in 2018 — down from 82 percent the previous year.

When the ratio goes down, that means insurers are keeping more money for profit and/or administration.

“No one stays awake at night worrying about insurance companies’ profits and overhead,” Cox said.

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“But if you’re concerned about the market being sustainable, then you would want insurers to at least be making enough money to cover their costs and want to continue to participate in the market. So, there’s a balance to strike here.”

The Kaiser report noted that by mid-2017, when insurers were setting premiums for 2018, it wasn’t clear whether the Trump administration would enforce the ACA’s requirement for individuals to buy coverage or make certain payments to insurers called for by the law.

More broadly, it wasn’t clear the ACA even would survive, Cox said, adding that the Trump administration cut funding for consumer outreach efforts.

In the end, the Republican-controlled Congress passed tax legislation in 2017 that eliminates enforcement of the individual mandate this year — not in 2018. And the impact of “cost-sharing reduction” payments to insurers ultimately was muted.

“These new data from 2018 offer further evidence that insurers in the individual market are regaining profitability, though more recent policy and legislative changes taking effect in 2019 ... continue to cloud expectations somewhat for the future,” the Kaiser report states.

The reversal of fortune showed up in the 2018 results at Medica, which is one of the few health insurers that stuck with a strategy of trying to gain marketshare via the ACA individual market.

After all other insurers left the health exchange markets in Iowa and Nebraska for 2018, Medica was the lone option in both states last year and saw operating income of $125 million.

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