Association for Public Policy Analysis & Management

A stable market for individual health insurance, characterized by competition and choice, affordable premiums, and modest amounts of entry and exit, is critical to successful implementation of the Affordable Care Act (ACA). The  ACA has introduced major changes to insurance markets intended to improve consumer access to, and value from, health insurance. Though several ACA-mandated insurance market reforms were established shortly after the passage of the ACA (e.g., dependent coverage up to age 26), many of the major reforms were introduced in 2014, including the opening of the Health Insurance Marketplaces (“Marketplaces”), creation of several premium stabilization programs, and requirements to meet essential health benefits. There is considerable interest in how these changes have affected both the value of insurance to consumers and stability in the insurance market.

This paper presents new evidence on insurance market stability before and after the introduction of the 2014 ACA reforms. Using new data on health care claims payments, administrative costs, and premiums submitted by insurance companies to the Centers for Medicare and Medicaid Services Center for Consumer Information & Insurance Oversight, we find that the value of insurance to consumers is increasing, as demonstrated by the steady rise in average medical loss ratio (MLR) across individual market insurers, from 0.82 in 2011 to 0.86 in 2014. Trends are similar among insurers that entered the Marketplaces and those that did not. Further, in cases where insurers had MLRs showing they paid out in claims more than they collected in premiums (e.g., due to underestimation of enrollee health risk or pricing strategies aimed at gaining market share) or below the minimum level required by the ACA (0.8), most adjusted and had MLRs in the 0.8-1.0 range in the following year. Finally, we find that the ACA premium stabilization programs (reinsurance, risk adjustment, and risk corridors, collectively known as the “3Rs”) intended to insulate issuers from risk given new regulations played a key role in mitigating the effects of uncertainty during this transition, allowing insurers to have consistent revenues over this period. This finding suggests that it will be critical to monitor this market over the next year, when two of the programs are set to expire.