S&P Global is bullish on the Affordable Care Act market for Blues plans, if the ACA is left alone to mature.
Blue Cross Blue Shield insurers, which lead most ACA markets, saw a marked improvement in operating performance in the ACA individual market in 2016, the ratings agency said.
"Our analysis of 2016 results and the market enrollment so far in 2017 shows that the ACA individual market is not in a 'death spiral,'" said S&P Global Ratings author Deep Banerjee said. "But it isn't on a stable footing either."
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Enrollment in Healthcare.gov dropped by 5 percent from 2016 to 2017. The enrollment decline would have been greater due to an average 20 percent rise in premiums in 2017, but was bolstered by the stabilizing effect of ACA's income-based advanced premium tax credit for consumers and cost-sharing reduction subsidies for insurers, the report said. The cost-sharing reduction subsidies allow insurers in the marketplace to give low income consumers lower deductibles.
ACA market target profitability is still a couple of years away and could be derailed if a repeal or change to the ACA takes away these benefits, Banerjee said. Both are the subject of intense debate, he said.
Republicans are working to repeal and replace the ACA, and are currently considering an amendment to House Speaker Paul Ryan's American Health Care Act. The original AHCA plan would have ended the tax credits by 2020.
The cost-sharing reduction payments to insurers are intact for now, as Ryan has pledged to continue making the payments until the outcome of House v. Price, formerly House v. Burwell, plays out. The court case over Republican opposition to the payments has taken on a bizarre quality since President Donald Trump took office, as it essentially represents the federal government suing itself. The administration is expected to drop the case once a new GOP bill is in place to replace the ACA.
"Looking forward, we expect insurers, on average, to get close to break-even margins in this segment in 2017," Banerjee said. "But 2018 and beyond are still uncertain given potential legislative changes to the U.S. health insurance market and the pending legal battles over the cost-sharing reduction subsidy."
If the market continues unaffected or with fixes rather than an overhaul, in 2018 more insurers should be reporting positive, single-digit margin improvement, he said.
Currently insures face a May and June deadline to price premiums for 2018.
Numerous insurers, such as Humana, have announced they are leaving the ACA next year.
Based on the recent announcements, some counties in Iowa and Tennessee will have no insurers on the ACA exchanges in 2018, S&P said.
More will leave, or set higher-than-expected premium rate increases, if more is not known about the future of market stability, he said.
S&P said it focused on the Blues because in most states, the insurer has the leading shares in its local individual markets and is participating on and off the exchanges.
S&P did not include the for-profit Blue plans that are part of the publicly traded Anthem. It also did not include Blue Shield of California because statutory filing templates in that state differ significantly from those in the remaining states.
S&P said it had forecasted a five-year path to stability for the ACA.
"After starting on the wrong foot in 2014, and deteriorating further in 2015, we are seeing the first signs in 2016 that this market could be manageable for most health insurers," Banerjee said. "Other than a few exceptions like the Florida and New Jersey Blues, most Blue plans have struggled in this line of business. But the medical loss ratios for most Blues improved significantly in 2016."
Medical loss ratios represent the percentage of premiums insurers pay out in claims. For instance, if an insurer uses 80 cents out of every premium dollar to pay its customers' medical claims, the company has a medical loss ratio of 80 percent.
The weighted average MLR for the Blues included in the S&P study was about 92 percent for full-year 2016, compared to 106 percent in 2015 and 102 percent in 2014.