One of the volatile shifts we see in the health insurance industry is the widespread coming and going of insurers and carriers from the individual markets. This constant flux can be viewed as a sign of robust competition but can also point to a few key disincentives. Today, we’ll look behind the curtain to explore why carriers join and exit the individual market so often. And we’ll discuss some of the benefits and setbacks of this seemingly revolving door of providers.
1. Understanding How the Individual Market Works
Looking at where and how insurance providers find clients and enrollees, you can see there are a variety of options. The individual market is one of a few segments in which providers offer health plans. To explore why some providers join and exit the individual market, it’s important to look at the profitability and opportunities the individual market and other channels offer.
What Is the Individual Market?
The individual market is the ecosystem in which individuals can purchase health insurance coverage independent of an employer. In this environment, any customers exploring their purchase options will buy directly from the insurance provider and will be responsible for paying the entire monthly premium amounts. This system is different from a group plan offered by an employer since, in those scenarios, employers typically contribute to those premium costs.
The Competitive Option of the Marketplace
Health insurance companies can also offer coverage via the exchanges. And this is an attractive option because consumers without employer-sponsored coverage, with financial limitations, could find plans on the marketplace and qualify for subsidies to help pay for the monthly premiums. At the provider level, these plans are required to adhere to the ACA guidelines. This may mean trimming the profit margins or restructuring coverage plans to remain compliant and competitive.
Targeting Businesses with Traditional Group Plans
Another insurance segment that insurance providers leverage continuously is the group plan market. Employers looking to offer benefits to staff will either look to the insurance provider directly or via an insurance broker. These plans are typically attractive to companies because of the risk-sharing that results in competitive rates. However, businesses are usually required to meet certain participation and contribution requirements, an endeavor that, after a year like 2020, is challenging for many organizations financially impacted by shuttering.
2. Why Providers Are Attracted to the Individual Market
The individual market offers some benefits to insurance providers. And many companies continue to see success and profits from operating within the segment. While many provider strategies will vary based on the needs, size, and scope of the company offerings, here are a few benefits the individual market continues to offer.
The ACA Brought Change to the Individual Market
Looking back over the 2012 through 2017 period, when the Affordable Care Act became a reality, the numbers suggest considerable increases in provider participation. The individual market saw sharp increases as a result of the millions of Americans flooding the exchanges of the ACA’s requirements to accept pre-existing conditions. The market opened up to an entirely new segment of people, and the plan coverage options became more comprehensive.
Profitability Benefits to Providers
Some data suggests the profitability of the provider on the individual market during those earlier years was reasonable. There have been substantial changes to how the individual market operates, more so than the marginal shifts in the small and large group markets. Some small insurers reportedly took bottom line hits at first, but in the end, the ROI came back to levels prior to the ACA reforms.
There Is a Pool of Individual Market Buyers
While millions of Americans continue to participate in traditional group plans through their employers, there is still a significant pool of individuals buying directly from the individual market. Overall, the current snapshot suggests there are roughly 13 million people buying coverage through the individual market. A little more than 10.5 million of those consumers are engaging through the state-based ACA exchanges or directly through HealthCare.gov. That means a pool of three or so million Americans are getting their insurance plans outside of group plans or the marketplace.
3. Why Carriers Exit the Individual Market
For every ebb, there is an opposing flow, and the individual market is no exception. Over the last several years of the ACA effects, the individual market saw fluctuations in both enrollment and provider participation. And for a variety of reasons, insurance providers exited the individual market to find success and profitability elsewhere. But there were a few common factors driving those carriers away.
A Diminishing Value Proposition
Some carriers struggled to contain costs. To try and stay the course, some insurance providers began narrowing their networks of participating providers. Others tried reworking their coverage altogether. But in the end, these tactics didn’t always prove successful, and carriers began exiting the individual market due to a lack of profitability.
Fear of Anticipated Policy Changes
Politics also play a role in shifts in the individual market. Over the years, the threat of potential dismantling of the ACA or complete changes to the marketplace meant carriers needed to prepare. Anticipating major policy changes coming from Washington D.C., some health insurance providers began increasing premiums, worried about margins, and decreased enrollment. Others left the individual market altogether out of concerns for the passing of regulations that made profit unsustainable.
Struggling to Compete
Some insurance carriers venturing into the individual market soon realized just how steep the competition was. To remain competitive, a provider needs to meet the coverage needs of the consumer but also continue to earn a profit. The ACA did what it was designed to do, which is drive steeper competition resulting in a provider shift to offer more comprehensive coverage at more affordable costs. Some carriers weren’t able to maintain or move quickly enough to inspire increased enrollments.
The individual market will likely continue to shift and experience changes. And carriers will see benefits and setbacks, creating a constant flux of providers coming and going. If you’re looking to explore ways to make the individual market work for your model, contact us! W3LL can help you enhance how you offer your most relevant products in a way that inspires growth and success.