McKinsey Sees 45% Drop in Insurtech ACA Exchange Participation

Financial losses and tight capital led to a big decrease in insurance technology firms’ individual health insurance market footprint this year, according to Edith Chan and other analysts at McKinsey & Co.

The firms are selling health coverage through only 24 Affordable Care Act public exchange programs this year, down 45% from the 2022 total, the analysts report in a new look at ACA exchange enrollment trends.

But national insurers like Cigna, CVS Aetna and UnitedHealth are selling coverage through ACA public exchange programs in more states this year, and their footprint has expanded 28%, to 50 state exchange programs.

Blue Cross and Blue Shield carriers and provider-owned insurers increased their footprint by 4.2%, to 125, and the total number of exchange program options increased 2%, to 303.

What It Means

ACA marketplace trends might hint at what’s happening to financial services intermediaries of all kinds; this might be a year when blue chip stock issuers and Main Street firms are outperforming the firms that have promised to change everything.

The ACA Exchanges

Congress created the ACA exchange when it passed the two laws that created the Affordable Care Act statutory package.

Moderate lawmakers included the exchange program to fend off advocates of a government-run health finance system, by trying to use premium tax credit subsidies, new underwriting rules and a federally funded, web-based supermarket for health insurance to lower the cost and improve the appeal of commercial health insurance.

The federal government’s HealthCare.gov runs ACA exchange programs, or “marketplaces,” for 33 states, and 17 states and the District of Columbia run their own exchange programs.

Technical glitches plagued ACA exchange programs when the programs opened for business for the 2014 coverage year, but the programs have since recovered.

Enrollment in ordinary ACA public exchange plans and a related type of plan, Basic Health Plans, increased to 16.3 million people in March, from 16.1 million a year earlier, and from 14.5 million in 2014.

The market capitalization value (or theoretical stock sale price) of eHealth, a private web-based health insurance supermarket, is now about $200 per customer relationship. That implies a total value of about $3 billion for the ACA exchange system.

The Mix

Blue Cross and Blue Shield carriers have been strong supporters of the ACA exchange program, and Blues plans continue to be available to almost all exchange program users.

National carriers and provider-owned carriers both started out offering plans to about 55% of U.S. consumers in 2014.

Providers have stayed on the exchange shelves ever since, and their plans are now available to about 50% of exchange users.

National carriers narrowed their exchange footprint sharply in 2018 but have been expanding ever since. They are now on about 60% of exchange users’ shelves.

Before facing icy stares from investors, insurtech carriers had increased their exchange user reach from close to zero in 2014 to about 55% in 2022. They can still reach about 45% of exchange users.

Separate McKinsey figures, which extend only through 2022, show the different types of carriers’ actual share of exchange program users.

Although the Blues plans have been available to most exchange program users, their share of exchange users dropped to 42% in 2022, from 60% in 2014.

Provider-owned carriers increased their share of exchange users to 16% in 2022, from 10% in 2014, and the insurtechs increased their share to 14%, from 0%.

Although the national insurers have been increasing their exchange program footprint since 2018, their absence may have cost them enrollment momentum: They attracted just 5% of exchange program users in 2022, down from a share of 16% in 2014.

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