The Health of the Small-Group Insurance Market.

Issue: There has been relatively little discussion about the small-group employer insurance market since the implementation of reforms under the Affordable Care Act. It is important to understand the condition of this market before the impact of recent regulatory changes from the Trump administration. Goal: To understand how the ACA's market reforms have affected prices, enrollment, and competition in the small-group market. Methods: Analysis of financial data filed by small-group insurers with the federal government, along with relevant published literature. Findings and Conclusions: Enrollment has declined in the small-group market, although this is largely a continuation of a trend in place prior to the ACA. Substantially more small-business owners and workers now have coverage than prior to the ACA because many have been able to take advantage of subsidized individual plans through the marketplaces. For those who remain in the small-group market, price increases have been similar to those in the large-group market. The ACA has not reduced the cost of small-group insurance, but has made it more accessible and comprehensive without harming the market. It will be important to continue monitoring the small-group market to ensure that recent regulatory changes do not worsen market conditions.

Financial Performance of Health Insurers: State-Run Versus Federal-Run Exchanges.

Many insurers incurred financial losses in individual markets for health insurance during 2014, the first year of Affordable Care Act mandated changes. This analysis looks at key financial ratios of insurers to compare profitability in 2014 and 2013, identify factors driving financial performance, and contrast the financial performance of health insurers operating in state-run exchanges versus the federal exchange. Overall, the median loss of sampled insurers was -3.9%, no greater than their loss in 2013. Reduced administrative costs offset increases in medical losses. Insurers performed better in states with state-run exchanges than insurers in states using the federal exchange in 2014. Medical loss ratios are the underlying driver more than administrative costs in the difference in performance between states with federal versus state-run exchanges. Policy makers looking to improve the financial performance of the individual market should focus on features that differentiate the markets associated with state-run versus federal exchanges.

How Have Health Insurers Performed Financially Under the ACA' Market Rules?

Issue: The Affordable Care Act (ACA) transformed the market for individual health insurance, so it is not surprising that insurers' transition was not entirely smooth. Insurers, with no previous experience under these market conditions, were uncertain how to price their products. As a result, they incurred significant losses. Based on this experience, some insurers have decided to leave the ACA's subsidized market, although others appear to be thriving. Goals: Examine the financial performance of health insurers selling through the ACA's marketplace exchanges in 2015--the market's most difficult year to date. Method: Analysis of financial data for 2015 reported by insurers from 48 states and D.C. to the Centers for Medicare and Medicaid Services. Findings and Conclusions: Although health insurers were profitable across all lines of business, they suffered a 10 percent loss in 2015 on their health plans sold through the ACA's exchanges. The top quarter of the ACA exchange market was comfortably profitable, while the bottom quarter did much worse than the ACA market average. This indicates that some insurers were able to adapt to the ACA's new market rules much better than others, suggesting the ACA's new market structure is sustainable, if supported properly by administrative policy.

Early Experience of Financial Performance and Solvency of Medicaid-Focused Insurers Under ACA Expansion.

To allow for greater coverage of the uninsured, the Affordable Care Act expanded Medicaid coverage in 2014. Accessing financial data of state health insurers from the National Association of Insurance Commissioners, this data trend study compares the financial performance and solvency of Medicaid-focused health insurers prior to and after the first year expansion of Medicaid coverage. After the first year of Medicaid expansion, there was a significant increase in operating profit margin ratio for Medicaid-focused health insurers within expansion states. Lower medical loss ratio as well as no change in administrative costs contributed to this profitable position. The risk-based capital ratio for solvency increased significantly for health insurers in nonexpansion states while there was no change in this ratio for health insurers in expansion states. Conversely, the other important solvency ratio of cash flow margin increased significantly for health insurers in expansion states but not for insurers in nonexpansion states.

Analysis of Actual Versus Projected Medical Claims Under the First Year of ACA-Mandated Coverage.

For the individual market, 2014 was the first year Affordable Care Act medical claims experience data were available to set 2016 rates. Accessing Centers for Medicare and Medicaid Services rate data for 175 state insurers, this study compares projected medical claims with actual medical claims of 2014, as well as the cost and utilization of benefit categories for inpatient, outpatient, professional, and prescription drug spending. Actual costs per member per month (pmpm) were greater than projected in 2014 for inpatient, outpatient, and prescription spending but not for professional care. Overall, actual median medical cost was $443 pmpm, which was significantly higher by $41 than projected cost. Greater utilization of health care was primarily responsible for higher realized medical claims. In terms of the specific benefit categories-inpatient, outpatient, and prescription-actual costs pmpm were significantly higher than projected values. In terms of the drivers of inpatient costs, on an admission basis, higher costs and greater utilization of admissions resulted in higher inpatient costs. For outpatient costs pmpm, higher utilization rather than unit cost per visit drove increased costs. Higher than expected prescription drug costs were driven by both greater utilization and cost per prescription.

How Has the Affordable Care Act Affected Health Insurers' Financial Performance?

Starting in 2014, the Affordable Care Act transformed the market for individual health insurance by changing how insurance is sold and by subsidizing coverage for millions of new purchasers. Insurers, who had no previous experience under these market conditions, competed actively but faced uncertainty in how to price their products. This issue brief uses newly available data to understand how health insurers fared financially during the ACA's first year of full reforms. Overall, health insurers' financial performance began to show some strain in 2014, but the ACA's reinsurance program substantially buffered the negative effects for most insurers. Although a quarter of insurers did substantially worse than others, experience under the new market rules could improve the accuracy of pricing decisions in subsequent years.

Promoting Value for Consumers: Comparing Individual Health Insurance Markets Inside and Outside the ACA's Exchanges.

The new health insurance exchanges are the core of the Affordable Care Act's (ACA) insurance reforms, but insurance markets beyond the exchanges also are affected by the reforms. This issue brief compares the markets for individual coverage on and off of the exchanges, using insurers' most recent projections for ACA-compliant policies. In 2016, insurers expect that less than one-fifth of ACA-compliant coverage will be sold outside of the exchanges. Insurers that sell mostly through exchanges devote a greater portion of their premium dollars to medical care than do insurers selling only off of the exchanges, because exchange insurers project lower administrative costs and lower profit margins. Premium increases on exchange plans are less than those for off-exchange plans, in large part because exchange enrollment is projected to shift to closed-network plans. Finally, initial concerns that insurers might seek to segregate higher-risk subscribers on the exchanges have not been realized.

A Performance Analysis of Long-term Acute-Care Hospitals Owned by Large, Multistate Investor-Owned Companies.

This study provides a descriptive assessment of the operating performance of for-profit long-term acute-care hospitals owned by multistate, investor-owned companies (large FP LTCHs) compared with FP LTCHs owned by smaller FP companies (small FP LTCHs) and nonprofit LTCHs (NP LTCHs). The study used the Centers for Medicare & Medicaid Services cost report data for 290 LTCHs from 2010 through 2012 to compare the financial performance of large and small FP LTCHs and NP LTCHs. The study found that the median operating profit margin for large FP LTCHs was 8.06%, which was twice as high as that of the small FP LTCHs and NP LTCHs (4.78% and 2.80%, respectively). Larger size, serving a greater proportion of private pay and more complex patients and incurring lower operating expenses, including salary expenses, may account for the higher operating margin of the large FP LTCHs.

Hospital Acquisitions Before Healthcare Reform.

The hospital industry has experienced increased consolidation in the past 20 years. Since 2010, in particular, there has been a large rise in the number of hospital acquisitions, and observers have suggested this is due in part to the expected impact of federal healthcare reform legislation. This article reports on a study undertaken to identify the market, management, and financial factors affecting acute care, community hospitals acquired between 2010 and 2012. We identified 77 such hospitals and compared them to other acute care facilities. To assess how different factors were associated with acquisitions, the study used multiple logistic regressions whereby market factors were included first, followed by management and financial factors. Study findings show that acquired hospitals were located in markets with lower rates of preferred provider organization (PPO) penetration compared with nonacquired hospitals. Occupancy rate was found to be inversely related to acquisition rate; however, case-mix index was significantly and positively related to a hospital's being acquired. Financial factors negatively associated with a hospital's being acquired included age of plant and cash flow margin. In contrast to the findings from earlier studies of hospital acquisitions, our results showed that acquired hospitals possessed newer assets. However, similar to the findings of other studies, the cash flow margin of acquired hospitals was lower than that of nonacquired facilities.

Comparing Individual Health Coverage On and Off the Affordable Care Act's Insurance Exchanges.

The new health insurance exchanges are the core of the Affordable Care Act's (ACA) reforms, but how the law improves the nonsubsidized portion of the individual market is also important. This issue brief compares products sold on and off the exchanges to gain insight into how the ACA's market reforms are functioning. Initial concerns that insurers might seek to enroll lower-risk customers outside the exchanges have not been realized. Instead, more-generous benefit plans, which appeal to people with health problems, constitute a greater portion of plans sold off-exchange than those sold on-exchange. Although insur­ers that sell mostly on the exchanges incur an additional fee, they still devote a greater portion of their premium dollars to medical care. Their projected admin­istrative costs and profit margins are lower than are those of insurers selling only off the exchanges.

The Impact of Medicaid Expansion on Medicaid Focused Insurers in California.

To gain insights into the impact of Medicaid Expansion under the Affordable Care Act, this study assesses the enrollment, utilization, and financial performance measures of California Medicaid focused health insurers. The study compares these quarterly measures, during the expansion period of 2014 to the same quarterly measures in 2013 and 2012. During 2014, Medicaid focused insurers expanded enrollment, decreased inpatient days, and generated higher profit margins.

Assessing the Financial Condition of Provider-Sponsored Health Plans.

PURPOSE: The aim of this study was to assess the performance of health plans sponsored by provider organizations, with respect to plans generating strong positive cash flow relative to plans generating weaker cash flow. A secondary aim was to assess their capital adequacy. DESIGN: The study identified 24 provider-sponsored health plans (PSHPs) with an average positive cash flow margin from 2011 through 2013 at or above the top 75th percentile, defined as "strong cash flow PSHPs:" This group was compared with 72 PSHPs below the 75th percentile, defined as "weak cash flow PSHPs:" METHODOLOGY: Atlantic Information Services Directory of Health Plans was used to identify the PSHPs. Financial ratios were computed from 2013 National Association of Insurance Commissioners Financial Filings. The study conducted a t test mean comparison between strong and weak cash flow PSHPs across an array of financial performance and capital adequacy measures. RESULTS: In 2013, the strong cash flow PSHPs averaged a cash-flow margin ratio of 6.6%. Weak cash flow PSHPs averaged a cash-flow margin of -0.4%. The net worth capital position of both groups was more than 4.5 times authorized capital. CONCLUSION: The operational analysis shows that strong cash-flow margin PSHPs are managing their medical costs to achieve this position. Although their medical loss ratio increased by almost 300 basis points from 2011 to 2013, it was still statistically significantly lower than the weaker cash flow PSHP group (P<.001). In terms of capital adequacy, both strong and weak cash-flow margin PSHP groups possessed sufficient capital to ensure the viability of these plans.

The federal medical loss ratio rule: implications for consumers in year 3.

For the past three years, the Affordable Care Act has required health insurers to pay out a minimum percentage of premiums in medical claims or quality improvement expenses--known as a medical loss ratio (MLR). Insurers with MLRs below the minimum must rebate the difference to consumers. This issue brief finds that total rebates for 2013 were $325 million, less than one-third the amount paid out in 2011, indicating much greater compliance with the MLR rule. Insurers' spending on quality improvement remained low, at less than 1 percent of premiums. Insurers' administrative and sales costs, such as brokers' fees, and profit margins have reduced slightly but remain fairly steady. In the first three years under this regulation, total consumer benefits related to the medical loss ratio--both rebates and reduced overhead--amounted to over $5 billion. This was achieved without a great exodus of insurers from the market.

What's behind health insurance rate increases? an examination of what insurers reported to the federal government in 2013-2014.

The Affordable Care Act requires health insurers to justify rate increases that are 10 percent or more for nongrandfathered plans in the individual and small-group markets. Analyzing these filings for renewals taking effect from mid-2013 through mid-2014, this brief finds that the average rate increase submitted for review was 13 percent. Insurers attributed the great bulk of these larger rate increases to routine factors such as trends in medical costs. Most insurers did not attribute any portion of these medical cost trends to factors related to the Affordable Care Act. The ACA-related factors mentioned most often were nonmedical: the new federal taxes on insurers, and the fee for the transitional reinsurance program. On average, insurers that quantified any ACA impact attributed about a third of their larger rate increases to these new ACA assessments.

Health insurers' financial performance and quality improvement expenditures in the Affordable Care Act's second year.

The Affordable Care Act requires health insurers to rebate any amounts less than 80%-85% of their premiums that they fail to spend on medical claims or quality improvement. This study uses the new comprehensive reporting under this law to examine changes in insurers' financial performance and differences in their quality improvement expenditures. In the ACA's second year (2012), insurers' median medical loss ratios continued to increase and their median administrative cost ratios dropped, producing moderate operating margins in the group markets but a small operating loss in the individual market, at the median. For-profit insurers showed larger changes, in general, than did nonprofits. For quality improvement, insurers reported spending a significantly greater amount per member in their government plans than they did on their self-insured members, with spending on commercial insurance being in between these two extremes. The magnitude and source of these differences varied by corporate ownership.

The federal medical loss ratio rule: implications for consumers in year 2.

For the past two years, the Affordable Care Act has required health insurers to pay out a minimum percentage of premiums in the form of medical claims or quality improvement expenses--known as a medical loss ratio (MLR). Insurers with MLRs below the minimum must rebate the difference to consumers. This issue brief finds that total rebates for 2012 were $513 million, half the amount paid out in 2011, indicating greater compliance with the MLR rule. Spending on quality improvement remained low, at less than 1 percent of premiums. Insurers continued to reduce their administrative and sales costs, such as brokers' fees, without increasing profit margins, for a total reduction in overhead of $1.4 billion. In the first two years under this regulation, total consumer benefits related to the medical loss ratio--both rebates and reduced overhead--amounted to more than $3 billion.

What's behind health insurance rate increases? an examination of what insurers reported to the federal government in 2012-2013.

The Affordable Care Act requires health insurers to justify rate increases of 10 percent or more for nongrandfathered plans in the individual and small-group markets. Analyzing these filings for rates taking effect from mid-2012 through mid-2013, insurers attributed the great bulk--three-quarters or more--of these larger rate increases to routine factors such as trends in medical costs. Insurers attributed only a very small portion of these medical cost trends to factors related to the Affordable Care Act. The ACA-related factor mentioned most often, but only in a third of the rate filings in this study, was the requirement to cover women's preventive and contraceptive services without patient cost-sharing. But, the insurers who point to this requirement or other ACA-related costs attributed only about 1 percentage point of their rate increases to the health reform law.

Trend analysis of key solvency ratios for health plans in Medicaid managed care.

The focus of this article is to assess the solvency of health plans that manage Medicaid members across key plan traits, specifically Medicaid dominant or plans with more than 75 percent Medicaid members, and plans owned by publicly traded companies, and sponsored by health care providers. The study accessed National Association of Insurance Commissioners (NAIC) financial data and computed key solvency ratios for 117 Medicaid health plans over a five-year time trend from 2007 to 2011. A mean test compared the mean values for each year and for the entire study period on risk-based capital (RBC), cash-flow margin and debt to total capital ratios across these plan traits. For all years except 2008 Medicaid dominant plans had a lower RBC ratio for all four out of five years. Cash-flow margin ratio for Medicaid dominant plans was only lower in 2011 than non-Medicaid dominant plans. From 2007 to 2010, debt to total capital was higher for plans owned by publicly traded companies than non-publicly traded companies. Given the potential for an expanding Medicaid market, Medicaid health plans have reduced their risk of insolvency by increasing the RBC over time and reducing their debt capital. However between 2010 and 2011 cash-flow margin ratio decreased by almost 180 basis points for Medicaid dominant plans.

Insurers' medical loss ratios and quality improvement spending in 2011.

The Affordable Care Act's medical loss ratio (MLR) regulation requires insurers to spend 80 percent or 85 percent of premiums on medical claims and quality improvements. In 2011, insurers falling below this minimum paid more than $1 billion in rebates. This brief examines how insurers spend their premium dollars--particularly their investment in quality improvement activities--focusing on differences among insurers based on corporate traits. In the aggregate, insurers paid less than 1 percent of premiums on either MLR rebates or quality improvement activities in 2011, with amounts varying by insurer type. Publicly traded insurers had significantly lower MLRs in each market segment (individual, small group, and large group), and were more likely to owe a rebate in most segments compared with non-publicly traded insurers. The median quality improvement expenditure per member among nonprofit and provider-sponsored insurers was more than the median among for-profit and non-provider-sponsored insurers.

Hospital compliance with a state unfunded mandate: the case of California's Earthquake Safety Law.

Abstract In recent years, community hospitals have experienced heightened regulation with many unfunded mandates. The authors assessed the market, organizational, operational, and financial characteristics of general acute care hospitals in California that have a main acute care hospital building that is noncompliant with state requirements and at risk of major structural collapse from earthquakes. Using California hospital data from 2007 to 2009, and employing logistic regression analysis, the authors found that hospitals having buildings that are at the highest risk of collapse are located in larger population markets, possess smaller market share, have a higher percentage of Medicaid patients, and have less liquidity.