How Would Individual Market Premiums Change in 2019 in a Stable Policy Environment?

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In recent weeks, insurers in many areas of the country have unveiled the premiums they propose to
charge for individual market health insurance policies in 2019. In setting premiums for 2019, insurers
are taking account of several policy changes that will be newly in effect for the 2019 plan year, including
repeal of the individual mandate penalty and Trump Administration actions to expand the availability
of plans that are exempt from various Affordable Care Act (ACA) requirements. These policy changes
are generally expected to cause many healthier people to leave the individual market and thereby raise
individual market premiums (e.g., CBO 2018a; Blumberg, Buettgens, and Wang 2018).

This analysis examines how premiums might have changed in 2019 in a stable policy environment. To
do so, I first estimate insurers’ revenues and costs in the ACA-compliant individual market through
2018, drawing primarily on insurers’ reports to state and federal regulators. With these estimates as a
starting point, I then estimate how premiums would have changed in 2019 under various assumptions
about how insurers’ costs and margins would have evolved in 2019 without the major pending policy
changes. This analysis reaches two main conclusions:

 Insurers will earn large profits in the ACA-compliant individual market in 2018:
I project that insurers’ revenues in the ACA-compliant individual market will far exceed their
costs in 2018, generating a positive underwriting margin of 10.5 percent of premium revenue.
This is up from a modest positive margin of 1.2 percent of premium revenue in 2017 and
contrasts sharply with the substantial losses insurers incurred in the ACA-compliant market
in 2014, 2015, and 2016. The estimated 2018 margin also far exceeds insurers’ margins in the
pre-ACA individual market. These estimates for 2018 as a whole are broadly consistent with
estimates for the first quarter of 2018 derived from insurers’ first quarter financial filings by
researchers at the Kaiser Family Foundation (Semanskee, Cox, and Levitt 2018).

The estimated improvement in insurers’ margins for 2018 is driven by the substantial
premium increases insurers implemented for 2018, which will almost certainly be more than
sufficient to offset the loss of cost-sharing reduction (CSR) payments and what appears likely
to be another year of moderate growth in underlying claims spending. Prior analysis of
insurers’ 2018 rate filings suggests that many insurers expected policy changes that are now
scheduled to take effect in 2019, notably repeal of the individual mandate penalty, to take effect
in some form during 2018 (Kamal et al. 2017). This may have led insurers to incorporate those
policy changes into their premiums a year early.

 In a stable policy environment, average premiums for ACA-compliant plans
would likely fall in 2019: In this analysis, I define a stable policy environment as one in
which the federal policies toward the individual market in effect for 2018 remain in effect for
2019. Notably, this scenario assumes that the individual mandate remains in effect for 2019,
but also assumes that policies implemented prior to 2018, like the end of CSR payments,
remain in effect as well. Under those circumstances, insurers’ costs would rise only moderately
in 2019, primarily reflecting normal growth in medical costs. Meanwhile, for reasons I discuss
in detail in the main text, it is unlikely that insurers would set 2019 premiums with the goal of
keeping margins at their unusually high 2018 level. Downward pressure on premiums from
falling margins would likely more than offset upward pressure on premiums from underlying
cost pressures, so premiums would fall on net.

Indeed, under my base assumptions, I estimate that the nationwide average per member per
month premium in the individual market would fall by 4.3 percent in 2019 in a stable policy
environment. This estimate is subject to some uncertainty, primarily because of uncertainty
about underlying individual market claims trends and about the margins insurers are likely to
target for 2019. However, I estimate that average premiums would have declined in a stable
policy environment under a range of plausible alternative assumptions.

The remainder of this analysis proceeds as follows. The first section provides an overview of my
methodology for estimating insurers’ revenues and costs through 2018, and the second section
presents the resulting estimates. The final section examines what these estimates imply for premium
changes in 2019 in a stable policy environment. A pair of appendices provide additional detail.



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