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Study: Many Insurers Spared from Deep Losses by Law's Protections

By Marissa Evans and Erin Mershon, CQ Roll Call

July 20, 2016 -- Most insurance companies lost money participating in the new insurance marketplaces in their first year, according to a study released Wednesday by The Commonwealth Fund.

Insurers fared poorly in part because they set their premiums too low when they entered the new marketplaces established by the law (PL 111-148, PL 111-152). Medical claims were about 5.7 percent higher than insurers initially projected, across the market.

Some did much better than others at the guessing game: the 25 percent of insurers whose projections were farthest off missed the mark by 35 percent on average. The best guessers were off by about 4 percent.

The results highlight challenges for the Obama administration, which hopes to keep insurance companies participating in a fluctuating and complicated marketplace as a way to increase competition and keep premiums low. Already this year, the nation's largest insurer, UnitedHealth Group, announced it will exit more than 30 state marketplaces in 2017.

However, a federal program played a major role in limiting insurers' losses. Reinsurance payments provided funding for insurers with a large number of high-cost patients. After taking reinsurance payments into account, medical claims were only about 2 percent higher than insurers first projected.

The federal government offset insurers' underestimates on high-cost patients by $7.9 billion. Reinsurance credits were almost 50 percent higher than insurers had originally estimated, the study found. While the program has prevented steep losses for insurance companies, researchers noted that the program is slated to phase out reinsurance protections for insurers.

The study authors also noted that insurers will develop more accuracy over time with their rate estimates, and that the market would likely stabilize once policyholders transition from plans that did not have to adjust to new rules because they were grandfathered in.

The study found that insurers struggled in the first year to create rates as they "lacked actuarial experience" with the federal health law’s changes.

"All well-functioning markets have winners and losers, so it should be no surprise that some health insurers failed to succeed in the ACA’s reformed market, especially during the first year," researchers wrote.

Researchers used premium rate data from the Centers for Medicare and Medicaid Services to look at projected 2014 medical claims from health law plans.

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