Obamacare marketplaces just had their most profitable first quarter ever

Insurers in the Affordable Care Act marketplaces earned an average of nearly $300 per member in the first quarter of 2017, more than double what they earned in a similar period in the marketplaces’ previous three years, according to new analysis by the Kaiser Family Foundation.

That figure puts insurers on track to make a profit in the marketplaces after years of losses, according to Cynthia Cox, a researcher at the Kaiser Family Foundation who worked on the analysis.

Total profits in 2017 will probably be lower than the first-quarter numbers suggest. First-quarter earnings are typically higher than subsequent quarters, since many people are still paying off their deductibles. Additionally, the gross earnings measure does not include administrative costs, which further eat away at profit margins. Still, the bountiful first quarter suggests the marketplaces are becoming a more profitable environment for the private companies selling insurance plans on the public exchanges.

Insurers’ newfound profitability seems to stem from increased premiums and steady costs, a suggestion the markets are stabilizing, according to Cox.

The premium hikes were “necessary as a one-time market correction to adjust for a sicker-than-expected” group of people buying insurance, the report said. In other words, the premium increases have come because insurance companies misjudged how expensive it would be to cover people in the marketplace, not because costs are spiraling out of control or the marketplaces are “exploding.” Many insurance companies referenced this in their 2017 rate filings.

Even more importantly for the stability of the market, costs have been relatively stable over the past few years. Spiking costs would indicate that these premium increases drove healthy people out of the market, which would in turn make costs even higher — the beginning of the “death spiral” that ends with extremely expensive premiums and only the sickest people still in the market.

In short, insurers have been able to set premiums high enough for them to make a profit but not so high that healthier customers are pushed out of the market — the recipe for market stability.

How insurers fare in Obamacare’s marketplaces is critical to the law’s efforts to providing coverage. The law depends on insurance companies selling on the marketplaces, which they’re far less likely to do if it isn’t profitable.

There’s also a political significance. In their bid to repeal the law, Republicans have claimed the ACA is collapsing, noting that many of the marketplaces have only a single insurer. Insurers are also facing uncertainty as Republicans consider scrapping the law entirely and the Trump administration has given few guarantees that it will continue to provide the federal funds marketplace insurers count on for support.

But just because the insurance market is stable now doesn’t mean it’s bulletproof. With the rapidly changing political situation — Congress weighing a marketplace overhaul as part of their health-care bill and the Trump administration giving no indication that it will continue to pay cost-sharing subsidies — insurers are increasing premiums or dropping out of the marketplace entirely to compensate for that uncertainty.

At present, 26,000 people across three states live in counties at risk of having zero insurers in their marketplaces in 2018. Getting companies to join in future years, however, is far more likely if current participants see ongoing profits.

Kim Soffen

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