New Patient Protection and Affordable Care Act (PPACA) programs and rules may have cut gross profit ratios at U.S. individual health insurance operations by more than 40 percent in 2014.
Lisa Clemans-Cope and Michael Karpman, analysts at the Urban Institute, have published summary data on the effects of PPACA changes on individual major medical underwriting results in a set of two papers based on carrier financial data filed with the National Association of Insurance Commissioners (NAIC).
For U.S. individual health insurance operations, the average gross operating profit ratio plunged to 8 percent in in 2014, from 14 percent in 2013. The 6-percentage-point drop amounted to 43 percent of the 2013 gross profit ratio.
In the small-group market, the gross operating profit ratio fell to 15 percent, from 16 percent.
In the large-group market, the gross operating profit ratio fell to 9 percent, from 10 percent.
In 10 states, PPACA changes helped push preliminary 2014 individual market medical loss ratio (MLR) averages over 100 percent.
Health insurers in Massachusetts had a preliminary individual health MLR average of 121 percent. The preliminary averages were over 100 percent and under 120 percent in Montana, Oklahoma, the District of Columbia, New Mexico, Illinois, Minnesota, Oregon, Kansas and Hawaii.
In 25 states, the preliminary 2014 averages are over 10 percent.
The Urban Institute analysts relied mainly on the filers’ 2014 operating results. They had limited information about how much cash the filers might get from one of the PPACA three R’s risk management programs, a reinsurance program that will pay issuers of PPACA-compliant individual coverage a total of about $8 billion in benefits for 2014 coverage, and no information about the effects of a risk corridors program that could shift about $360 million from PPACA exchange plan issuers that did well in 2014 to issuers that did poorly and a risk-adjustment program that could shift cash from plans that had relatively low-risk 2014 enrollees to plans with higher-risk enrollees.
To increase the U.S. gross profit margin ratio for 2014 to 15 percent, carriers would have had to set premiums 2 percent higher than the actual average, the analysts estimate.
Carriers in Massachusetts would have had to charge 36 percent more than they did to increase their average 2014 gross profit ratio to 15 percent.