The Affordable Care Act in 2014: Significant Insurer Losses Despite Substantial Subsidies

Insurers suffered significant losses selling individual market Qualified Health Plans (QHPs) in 2014. These losses were well in excess of $2.2 billion despite these insurers receiving net reinsurance payments of $6.7 billion or $833 per enrollee. These payments were at least 40 percent more per enrollee than insurers had expected through the reinsurance program when setting premiums. Premiums in 2014 would have needed to be more than 25 percent higher to cover insurers’ cost of offering individual market QHPs in the absence of the reinsurance program (which is set to expire this year) and assuming the same enrollment. The premium increase would need to be much higher than that, however, to account for selection effects as relatively healthier people would be more deterred from the higher premiums than relatively less healthy people. There was wide variation in insurer performance selling QHPs in 2014. Insurers with narrow provider networks appear to have done relatively well, while the health insurance cooperatives (co-ops), established with government funding, incurred the greatest losses.

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