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Milliman: How PPACA World really worked in 2014

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The overall state of the U.S. individual commercial health insurance market looked terrible in 2014, but mainly because a large minority of issuers in the market posted big losses.

The percentage of issuers that made money in the individual health market actually increased between 2013 and 2014.

Issuers continued to have a much easier time making money in both the small-group market and the large-group market, but the percentage that generated group health underwriting gains was smaller in 2014 than in 2013.

Colin Gray and other analysts at Milliman have included numbers supporting those conclusions in an analysis of health insurers’ federal Medical Loss Ratio Reporting Form data

See also: Actuaries trace risk corridor maze

Milliman, a firm that does actuarial consulting work and other forms of consulting work for many health insurers and government agencies, posted the report as health insurers and regulators were gearing up for today’s Patient Protection and Affordable Care Act (PPACA) risk-adjustment program methodology policy meeting in Baltimore.

Health insurers set their 2015 rates, and even their 2016 rates, without clear, complete information about how the PPACA underwriting and plan design rules that took effect in January 2014 actually affected claims.

Before PPACA took effect, some analysts predicted the uninsured consumers who took advantage of the new PPACA rules and subsidies to get covered would be people who had previously gone without health coverage because they were relatively healthy.

Others predicted the new enrollees might tend to look more like the older, sicker people who previously were shut out of the commercial individual health market in states that allowed medical underwriting because insurers saw them as being uninsurable.

For a look at what the Milliman analysts found in the actual 2014 numbers, read on. 

2014 individual health underwriting loss disgust face

1. The 2014 individual health underwriting margins were miserable.

The Milliman analysts found that, overall, the number of U.S. residents with individual health coverage increased to 15 million in 2014, from 11 million in 2013.

The average amount of earned premiums per covered life increased to $303 per month from $247, and the average amount of claims expense per covered life increased to $252 from $210.

The average underwriting loss increased to $18.54 per month, or negative 6.1 percent, in 2014 from $9.68, or 3.9 percent per month, in 2013.

In the small-group market, the number of covered lives fell to 16 million from 17 million. The average underwriting margin narrowed to 1.3 percent from 2.8 percent.

In the large-group market, the number of covered lives dropped to 43 million, from 47 million, and the average underwriting margin fell to 1.7 percent from 2 percent.

See also: What will PPACA really do to coverage prices?

Gorgeous state flag map; represents state variations in 2014 health underwriting results

2. The U.S. health insurance underwriting margin averages hide big company-to-company and state-to state variations in 2014 performance.

The percentage of issuers in the individual health market that reported an underwriting loss over 10 percent jumped to 33 percent in 2014 from 19 percent in 2013.

But the percentage that reported an underwriting gain also increased to 36 percent from 32 percent. More than 5 percent of insurers reported 2014 individual health underwriting gains over 10 percent.

In the small-group market, fewer than 5 percent of the issuers experienced underwriting losses of 10 percent or more in 2014, but the percentage that reported underwriting gains in that market fell to less than 65 percent, from more than 70 percent in 2013.

In the large-group market, few carriers posted double-digit underwriting losses, but the percentage of those that made money fell to 70 percent, from close to 80 percent in 2013.

The PPACA risk corridors program, a program that was supposed to use cash from thriving individual health issuers to help struggling issuers in 2014, ended up collecting enough cash from thriving issuers to pay less than 13 percent of its obligations.

When the Milliman analysts looked at the effects of the risk corridors program shortfall, they found the program shortfall cut the average individual health net underwriting margin more than 10 percent in eight states: Hawaii, Idaho, Kentucky, Montana, Nebraska, Oklahoma, Oregon and Utah.

But the shortfall cut the average individual health net underwriting margin less than 1 percent in 16 states, including California, and it cut the average margin less than 5 percent in 30 states.

See also: Actuary analyzes risky PPACA business

Ben Franklin on a $50 bill; represents skepticism about 2014 health rates

3. The average 2014 individual health monthly premium was much lower than the average in either the small-group or the large-group market.

PPACA changes seem to have increased claim costs much more in the individual market than in the group market, the Milliman analysts found.

The overall average amount of claim expense per enrollee per month increased 2.3 percent in the small-group market between 2013 and 2014, 6.7 percent in the large-group market, and 20 percent in the small-group market.

But the average expense per covered life was still much lower in the individual market than in the group market: The average expense was 19 percent lower in the individual market than in the small-group market, and 26 percent lower than in the large-group market.

See also:

Actuaries: PPACA may have mixed effects on costs

Milliman: Comp cuts could cool individual premiums


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