Majority of ACA Insurers Underestimated Costs in 2014

A recent study found that a majority of insurers lost money in 2014, their first year selling plans on the Affordable Care Act (ACA) marketplaces.

Approximately one-third of insurers turned a profit in their first year, reported a study published by the Commonwealth Fund. The researchers examined data from each of the 144 insurers selling marketplace plans that had more than 1000 enrollees.

The insurers included were active in 2013, and sold mostly ACA plans in 2014. Insurers charged more for their premiums in 2014, but still were unable to profit due to high payouts.

The researchers found that these insurers underestimated their costs by 5.7% in 2014; however, approximately one-quarter of insurers underestimated their costs by as much as 35%. Underestimating costs, deciding how much to spend on medical costs, and deciding what to make premium costs all contributed to the losses, according to the study.

The actual medical costs were on average 2% higher than insurers expected, and the reinsurance provision assisted these companies whose estimates were too low.

“One insurer can have a very different experience than another, so to draw accurate conclusions about how insurance companies are faring in the ACA marketplaces it’s important to look at their experiences comprehensively,” said study lead author Mark A. Hall. “When we do that it is clear that estimating exactly how much these new enrollees would cost them was a challenge but the reinsurance program protected them from large losses on enrollees with high medical costs.”

Researchers found that the best performing insurers only profited 8.5%, and the worst performing insurers had a loss of 21.8%.

“The ACA marketplaces are functioning like other competitive markets, with some insurers doing better than others,” said Commonwealth Fund President David Blumenthal, MD. “In order for the ACA marketplaces to continue to provide a range of options for consumers, insurers must be able to sell plans at premiums that cover their costs. Marketplace performance should be monitored on an ongoing basis to ensure that they remain stable and competitive.”