S&P report: ACA individual market is fragile, but not in a ‘death spiral’


Wall Street

Based on 2016 results and enrollment so far in 2017, the Affordable Care Act’s individual market is not in a “death spiral” as some have claimed—but it also isn’t on very stable footing, according to a new report from Wall Street analysts.

The report, from the ratings agency Standard & Poor’s, noted that 2016 brought the first signs that the ACA’s marketplaces could be manageable for insurers after a rough 2014 and 2015.

For example, the weighted average of the medical loss ratios of Blue Cross Blue Shield plans included in the analysts’ study dipped below 100% for the first time last year. That’s a positive sign, but insurers with MLRs above 90% still generally face an underwriting loss after factoring in administrative costs, suggesting more room for improvement.

This year, the analysts believe that meaningful premium increases, product and network changes, as well as “regulatory fine-tuning” of ACA rules, will get insurers closer to breaking even. But it will take another year or two of improvements for most to get to their target profitability levels.

Notably, the premium hikes insurers put in place didn’t result in a major drop in enrollment—and potential death spiral—the analysts wrote. In fact, open-enrollment signups dropped only slightly from 2016 to 2017, in part because the ACA’s subsidies increase along with premiums.

Looking ahead, the analysts expect premiums to rise in 2018, but “at a far lower clip” than they did this year. If the ACA’s rules stay largely intact, they predict low-single-digit growth in individual market membership next year, with most counties continuing to have at least one insurer. Recent insurer exits, however, might leave certain counties with no options on the exchanges.

But the analysts note that their predictions for the rest of this year and 2018 won’t hold if there is a major legislative overhaul of the marketplaces, like an ACA repeal. In addition, much depends on whether insurers will get clarification about cost-sharing subsidies, and whether the Trump administration will continue to conduct enrollment outreach and enforce the individual mandate.

The market still needs time to mature, the report argues, and “every time something new (and potentially disruptive) is thrown into the works, it impedes the individual market’s path to stability.”

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