Affordable Care Act Turmoil: Large Losses in the Individual Market Portend an Uncertain Future

Abstract

The Affordable Care Act (ACA) placed numerous requirements on insurance offered in both the individual and small group markets. This study presents data from the 174 insurers that offered qualified health plans (QHPs)—plans that satisfy the ACA requirements and are certified to be sold on exchanges—in both the individual and small group markets in 2014. QHPs in both markets are essentially the same and are governed by nearly identical regulations, making possible a better-controlled analysis of the performance of insurers participating in the two markets. Average medical claims for individual QHP enrollees were 24 percent higher than average medical claims for group QHP enrollees. Moreover, average medical claims for individual QHP enrollees were 93 percent higher than average medical claims for individual non-QHP enrollees. As a result, insurers made large losses on individual QHPs despite receiving premium income that was 45 percent higher for individual QHP enrollees than for individual non-QHP enrollees. These higher medical claims resulted in loss ratios for individual QHPs nearly 30 percentage points higher than loss ratios in other markets. Given that insurer performance selling individual QHPs worsened in 2015, these findings suggest that the ACA rules and regulations governing QHPs may be incompatible with a well-functioning insurance market even with subsidies to insurers and incentives for individuals to enroll in QHPs.