When insurance companies first learned of Covered California, they estimated that they would lose millions of dollars. According to CNN, they did. However, after a few years of navigating the system and improving other aspects of business, insurance companies finally began to make money from Covered California in 2018. Bloomberg notes that their formula for success was a simple one: premium increases. One Kaiser Family Foundation analysis found that health insurance premiums increased by roughly 32% in 2018.
Health Insurance Companies Remain Profitable
After a profitable year, health insurers now continue to make money through Covered California by selling individual plans. This is despite the fact that the new administration removed the individual mandate. Many consumers are now purchasing short-term plans that provide bare-bones coverage.
Thus, despite predictions that the market would collapse and that the Affordable Care Act was unsustainable, the actual results prove otherwise. Yes, it did take some insurance companies years to readjust, but they have not suffered. According to CNN, even though health insurance companies did not bring in huge profits from Covered California in 2016, the industry saw a 46% increase in its net income.
One big contributing factor is that they reported much lower underwriting losses. In 2015, losses added up to $2.1 billion, but for 2016, that figure stood at just $893 million. The industry also saw an especially high increase in underwriting profitability for Medicare Advantage, which rose to 279%.
The Effect on Stabilizing Insurance Costs
Because of this ongoing profitability on multiple fronts, insurance companies did not have high rate hikes for 2019. In fact, some insurance premiums declined by up to 1.5%. This helps individual market insurers to remain profitable without putting Americans who need insurance at a disadvantage. Experts estimate that modest price increases should continue into 2020.
So far, some insurers have already made early requests for 2020. These requests confirm the overall expectation. Compared to the 32% spike in 2018, they are reasonably low. Here are a few examples of average rate increase requests per state:
12.5% for Vermont
8.4% for New Yorker insurers
3.3% for Oregon insurers
That said, the ACA does fall short on one front. When people do not qualify for federal financial aid, insurance premiums are still expensive.
The Health Insurance Industry Performance for 2019
When Kaiser Family Foundation analyzed the market, they relied on loss rations and margins as their two main metrics. They found that for ever dollar health insurance companies raked in for premiums, 73 cents returned to consumers in the form of medical claims.
While this is higher than it was in the first quarter of 2018, it is much lower than the 88 cents of each premium dollar paid back to consumers in 2015. Similarly, the gross profit margins were lower than the first quarter of 2018, but still much higher than they had ever been in 2011 onward.