Sixty-three percent of health insurers were unprofitable during 2014, the first year of full reforms under the Affordable Care Act, according to a report from the Commonwealth Fund.
The report evaluated 144 insurers to see whether their profit margins in the individual market increased or decreased from 2013 to 2014. Nearly half of insurers, or 47 percent, incurred losses in both 2013 and 2014. An additional 16 percent of insurers switched from incurring a profit in 2013 to incurring a loss in 2014.
"Medical claims, rather than administrative costs, were the main driver of the negative financial experiences," the report explains. "Because both medical claims and administrative expenses increased more than premiums in 2014, health insurers’ overall operating profits (known as underwriting gain) diminished noticeably from previous years."
Twenty percent of insurers turned a profit in 2014 after incurring a loss in 2013, and 17 percent of insurers turned a profit in both years. Insurers in this category saw a decline in their medical and administrative costs.
"Establishing initial rates under the newly reformed and greatly expanded individual market was particularly challenging for the first year, because insurers lacked actuarial experience under the ACA’s market conditions," the report says. "Therefore, actuaries had to make various assumptions based on judgment and a certain amount of guesswork."
For example, medical claims for Obamacare coverage in 2014 were 5.7 percent higher than what insurers projected, which made some insurers perform worse than others. While the Affordable Care Act’s reinsurance program was designed to help insurers transition to the new rules and help them offset their costs, it is set to phase out in 2017. To improve insurers’ financial performance, the report projects that premiums will have to increase.
Covered California, the state’s insurance marketplace, announced on Tuesday that plans would rise by 13.2 percent in 2017, which is up from 4 percent from the previous two years. The marketplace cited the rising cost of health care as one of the reasons for the rate increase.
"The dramatic rate increases out of California are just the latest in an endless drumbeat of bad news about Obamacare," said Jeremy Adler, communications director at America Rising Squared. "Whether it’s co-op failures, cost hikes, or lack of consumer choices, it’s laughable that the president and Democrats still try to claim that this law is working because all facts point to the contrary."
The Department of Health and Human Services was contacted but did not provide a comment for this story.