ACA market rebound could prompt $800M in rebates to consumers

A new report finds that improved profitability for insurers selling Affordable Care Act coverage to individuals last year means health plans could be issuing a record $800 million in rebates to consumers — a national finding that fits with the financial results in Minnesota.

The study from the California-based Kaiser Family Foundation suggests that insurers overshot when setting premiums for 2018 because of uncertainty over the future of the federal health law, given moves at the time by the Trump administration.

When carriers set premiums in the individual market that are too high, the Affordable Care Act (ACA) requires them to pay rebates that effectively cap the amount of money that health plans can keep for administrative costs and profit. A Star Tribune review of regulatory filings in April revealed that two individual market insurers in Minnesota estimate that they will collectively pay $37 million in rebates, which aren't yet final.

"On average, the market was quite profitable for insurers," said Cynthia Cox, a program director with the Kaiser Family Foundation. "In 2018, for the most recent data, Minnesota is similar to the national average."

The prospect of big rebates is the latest of many twists in the individual market under the ACA, which brought sweeping changes to coverage for self-employed people and those under age 65 who don't get a health plan from their employer.

The individual market has always been relatively small, providing coverage to about 7% of all Americans in 2017. But it has received disproportionate attention over the past five years as the ACA blocked carriers from denying coverage to people with pre-existing health conditions.

The ACA provided federal tax credits that subsidize premium costs for many. But they don't extend to people with incomes that are more than four times the poverty level — a group that saw big premium increases in the market as a result.

Carriers hiked rates from 2014 through 2017 as they tried to catch up with the cost of medical bills that exceeded premium revenue.

Insurers and regulators talk about the relationship between premium revenue and medical claims in terms of the "medical loss ratio," or MLR, which describes the share of premium dollars that are spent on health care and quality improvement programs. When an insurer spends less than 80% of its premium revenue in the individual market on care and quality, the ACA requires rebates.

The new study from the Kaiser foundation shows that individual market insurers, on average, had a medical loss ratio of 70% in 2018, down from 82% the previous year. When the ratio goes down, that means insurers are keeping more money for profit and/or administration.

In Minnesota, the MLR for carriers across the individual market was 73% last year, Cox said. The ratio the previous year was roughly comparable.

"The rebate would essentially bring the plan's loss ratio back up to 80%," she said. "If you don't get a rebate, that means that your plan was in compliance, which means you were already getting a reasonably good value out of your health plan."

The MLR numbers for the past two years are in stark contrast with 2014 through 2016, Cox said, when Minnesota insurers paid out more than $1 for medical care and quality programs for every $1 of premium revenue.

At that point, health insurers were losing a lot of money in the market — $749 million over the three-year period, according to the Minnesota Council of Health Plans, a trade group for insurers. Collective operating profit from Minnesota's individual market during 2017 and 2018, by contrast, was $354 million, according to the trade group.

"No one stays awake at night worrying about insurance companies' profits and overhead," Cox said. "But if you're concerned about the market being sustainable, then you would want insurers to at least be making enough money to cover their costs and want to continue to participate in the market. So, there's a balance to strike here."

The Star Tribune review of regulatory filings showed that Eagan-based Blue Cross and Blue Shield of Minnesota projected issuing $33.7 million in rebates to individual market customers. Minneapolis-based UCare projected issuing $3.5 million in rebates.

Final amounts won't be determined until this summer. If the numbers stand, it would make for a second consecutive year of rebates from Blue Cross.

The Kaiser report noted that by mid-2017, when insurers were setting premiums for 2018, it wasn't clear whether the Trump administration would enforce the ACA's requirement for individuals to buy coverage or make certain payments to insurers called for by the law. More broadly, it wasn't clear that the ACA would even survive, Cox said, adding that the Trump administration cut funding for consumer outreach efforts.

In the end, the Republican-controlled Congress passed tax legislation in 2017 that eliminates enforcement of the individual mandate this year — not in 2018. And the effect of "cost-sharing reduction" payments to insurers ultimately was muted.

"These new data from 2018 offer further evidence that insurers in the individual market are regaining profitability, though more recent policy and legislative changes taking effect in 2019 … continue to cloud expectations somewhat for the future," the Kaiser report states.

The reversal of fortune showed up in the 2018 results at Minnetonka-based Medica, which is one of the few health insurers that stuck with a strategy of trying to gain market share via the ACA individual market. After all other insurers left the health exchange markets in Iowa and Nebraska for 2018, Medica was the lone option in both states last year and saw operating income of $125 million.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck