Many insurers have lost money on the Affordable Care Act plans they sell to consumers. A new analysis shows how much those losses deepened in 2015, the second year of the law’s signature exchanges.
Based on insurers’ filings with state regulators, McKinsey & Co. estimates the health-insurance industry’s cumulative margin on individual plans last year was between -9% and -11%. That is roughly double the -4.8% margin the consulting firm calculated for 2014. For 2015, only about a quarter of insurers reported that they made a profit on their individual plans.
There are some caveats to the 2015 figures in the analysis, which includes only 86% of insurers for that year because some filings aren’t available; for 2015, the results don’t yet factor in the final impact of health-law programs designed to smooth insurers’ risks.
McKinsey attributes the steepening financial losses largely to medical costs. According to the filings, insurers’ medical-loss ratios, or the share of premiums spent on medical claims, worsened in 2015 compared with 2014. McKinsey estimates that this factor increased the industry’s aggregate loss by around 4.5 to 5 percentage points.
The consulting firm also points to the scaling-back in 2015 of the health law’s reinsurance program, which protected insurers from some costs.
Still, McKinsey sees some cause for optimism. The analysis suggests that the health law’s subsidies, which help lower-income people purchase health plans, should prevent a “death spiral,” in which an insurance market gets caught in a cycle of increasing rates and shrinking customer pools.
The consultants also say that some insurers are finding profits in certain types of plan designs, notably those with limited networks of health-care providers, and health maintenance organization-style plans that tightly manage the health care people can get. “It may require a very different business model” for some insurers, said Erica Coe, co-leader of the McKinsey Center for U.S. Health System Reform.