It has not been a market for the faint of heart.
Supporters of the Affordable Care Act achieved a major victory this past week when, thanks to cajoling and arm-twisting by state regulators, the last “bare” county in America — in rural Ohio — found an insurer willing to sell health coverage through the law’s marketplace there. So despite earlier indications that insurance companies would stop offering coverage under the law in large parts of the country, insurers have now agreed to sell policies everywhere.
But a moment of truth still looms for the industry in the coming weeks under the law known as Obamacare. Companies must set their final plans and premiums by late September, even as the Trump administration continues to threaten to cut off billions of dollars in government subsidies promised by the legislation. Insurers are also awaiting Senate hearings set to start on Sept. 6 for a hint of what steps, if any, lawmakers may take to stabilize the market.
With congressional Republicans’ yearslong quest to dismantle the Affordable Care Act dead for now, the fate of the landmark law depends in large part on the health of the insurance marketplaces and the ability of insurers to make a viable business out of selling coverage to individuals. When the law passed seven years ago, insurers saw a potential bonanza: tens of millions of brand-new paying customers, many backed by generous government subsidies and required by the new law to have health coverage. Now, about four years after the law’s marketplaces opened for business, most of the industry’s biggest players have pulled out.
On Thursday, Northwell Health, the largest hospital system in New York State, announced that it would shut down its insurance unit, CareConnect, which had been selling coverage in the state marketplace. The move forces tens of thousands of its customers to find another plan for 2018. Northwell’s chief executive put much of the blame on Washington.
Yet the continuing churn among insurers and the anxiety pervading the industry — stirred largely by President Trump’s predictions of collapse and threats to withhold critical government payments to insurers — have obscured an encouraging fact: Many of the remaining companies have sharply narrowed their losses, analysts say, and some are even beginning to prosper.
“Outside of the noise,” the surviving companies “are seeing a path forward in this marketplace,” said Deep Banerjee, an analyst with Standard & Poor’s who has examined the financial results of more than two dozen Blue Cross insurers.
“It is still a new market,” he added, “and everyone is adjusting to it.”
The healthier business outlook has been achieved at a big cost to consumers. To stanch their losses, many companies raised their prices substantially for this year while narrowing their networks of providers to hold down costs. In Phoenix, for example, a typical plan’s monthly premiums more than doubled. Although people with incomes low enough to qualify for federal subsidies were shielded from the brunt of the steep increases, the higher prices prompted Republicans to blame the law for plans that were out of many people’s reach.
In some cases, companies will seek even higher rates for 2018; the lone insurer left in Iowa is asking for a nearly 60 percent increase, on average.
Insurers have remained largely silent during the heated debate over the law’s future, hoping not to antagonize the Trump administration as it decides whether to continue paying the subsidies. The companies, which were vilified by proponents of the Affordable Care Act before it was enacted, are concerned that Mr. Trump may be setting them up as scapegoats on the order of Big Pharma. In a recent message posted on Twitter, Mr. Trump asked, “if ObamaCare is hurting people, & it is, why shouldn’t it hurt the insurance companies.”
Under the health law, in exchange for the wellspring of new customers, insurers agreed to operate using a fundamentally different business model. As the law required, they offered coverage to everyone, including people with existing medical conditions, and no longer charged people in poor health sharply higher prices.
But the industry’s enthusiasm gave way to misgivings as insurers lost billions of dollars in the law’s first years. Eager to enroll as many people as possible, many companies set prices too low because they had no experience covering these new customers. Some people, especially if they were young and healthy, complained about higher premiums, even though the prices were often below the actual cost of providing medical care. Insurers had a hard time managing people with the biggest medical expenses, and fewer healthier people than expected signed up.
Some of the nation’s largest and best-known companies, including Aetna, Humana and UnitedHealth Group, lost tens, even hundreds, of millions of dollars each. Aetna said it has lost roughly $900 million since 2014.
“This market proved to be quite cutthroat,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation. “Some of the big, old-time, insurers couldn’t compete on cost.” The companies modeled their plans on those they offered in the employer market, where there were broad, and expensive, networks of hospitals and doctors.
Most of the insurance start-ups inspired by the Affordable Care Act, including Northwell’s CareConnect and the so-called co-ops created under the law, could not survive.
Pointing to what he described as the failures of the federal government and Congress, Michael J. Dowling, Northwell’s chief executive, said in a statement that it had become “increasingly clear that continuing the CareConnect health plan is financially unsustainable.”
The individual market is estimated to encompass around 20 million people, including those who buy coverage directly from a broker or insurance company and do not qualify for a subsidy. In contrast, about 155 million Americans get coverage through their jobs. The large insurers abandoned the individual market under the health law because it was not worth the energy required to make it work, said Ana Gupte, an analyst with Leerink Partners. “They were losing money, and they have other businesses that are very profitable.” Those businesses have helped push many insurers’ stocks to record highs.
But among the insurers that are still in the game, Centene, a for-profit company, is now making money in the individual market and expanding. Some of the Blue Cross insurers, including Health Care Service Corp., which operates plans in multiple states, including Texas and Illinois, and Independence Blue Cross, which has 300,000 customers in Pennsylvania and New Jersey, began to turn a profit in the market this year.
A study released last month by the Kaiser foundation also found a brighter outlook over all in the early months of 2017. “These new data offer more evidence that the individual market has been stabilizing and insurers are regaining profitability,” the report said.
“It does take a couple of years, and our membership has climbed steadily,” said Daniel J. Hilferty, the chief executive of Independence Blue Cross. The company is currently seeking to raise rates around 8.5 percent next year but the increases could be sharply higher, especially if the administration decides to effectively end the penalty people face for not enrolling, Mr. Hilferty said. He worries about what could happen next in Washington.
Oscar Health, a venture capital-backed insurance start-up, lost roughly $200 million last year but, sensing a more promising future, plans to enter three more states and expand in California and Texas. The company has asked regulators if it can reduce the prices of some of its plans in Texas after working closely with the health systems in its network and getting a better understanding of its customers’ medical needs.
The company is “moving in the right direction,” said Joel Klein, a senior executive with Oscar, one of whose founders is Joshua Kushner, the brother of Jared Kushner, Mr. Trump’s son-in-law.
The health law has also provided insurers, including major players, with another opportunity to make money: the expansion of Medicaid, the state-federal government program for low-income people that now covers nearly 75 million people, according to the Kaiser foundation. About 14 million people enrolled in the program in states that accepted federal funding.
The insurers that stayed in the individual market have come to realize that the individual market was more like Medicaid than the employer business. Some customers have chronic conditions that have been poorly treated in the past, and insurers need to manage their care more closely. People shopping for a plan are very concerned about price, making it essential for insurers to find hospitals and doctors that provide care at the lowest cost.
Companies in a position to offer low-cost plans have thrived. Centene made use of its experience, including setting up networks of hospitals and doctors that care for Medicaid patients, to sell coverage. The company now insures about 1.1 million people in the individual market, and almost half of the counties left bare by its competitors. “For 2018, we intend to grow this profitable segment of our business,” Michael Neidorff, the company’s chief executive, told investors last month.
Still, the environment is challenging. Some companies that appeared to have early success are now floundering. Molina Healthcare, a California insurer that also specializes in Medicaid, is trying to stem its losses. The company, which this year ousted the family members who served as its top executives, said it would leave two states, Utah and Wisconsin.
The lack of clarity over both the market’s future and the efforts to stabilize it could also lead to much higher prices next year. Some insurers are requesting rate increases of 20 to 30 percent or more. “Just as they’re getting their footing, they have the worst thing that can happen to an insurance company: uncertainty about the business model,” said Dr. Stephen Ondra, a former insurance executive who worked in the Obama administration.
Mr. Trump’s threats to stop reimbursing insurers for plans that waive deductibles and co-payments for low-income people are particularly worrisome. Under the law, insurers must offer these more generous plans, and they priced their policies assuming they would receive about $7 billion from the government this year to cover the costs. The companies are paid monthly, and Congress has not appropriated the money. Mr. Trump could stop the checks.
An analysis by the Congressional Budget Office estimated that premiums for the most popular plans would increase by 20 percent next year if the financing were cut off.
Insurers can still choose to leave in the coming weeks if they decide there is too much confusion about what will happen next year, especially if they are asked to lock in prices that assume government funding without a guarantee, said Sabrina Corlette, a research professor at Georgetown University. “There are so many unknowns,” she said.