Individual market underwriting profitability in health insurance

Abstract

We analyze the underwriting performance of insurers operating in the individual health insurance market from 2010-2017. Our sample consists of both life and health insurance companies. First, we offer descriptive sample statistics of key financial performance measures in this market. Then, we study the difference in performance pre- and post-2014, which represents the year that state online marketplace exchanges were implemented as part of significant health care reform, namely the federal Affordable Care Act (ACA). Our analysis allows us to test whether health care reform affected insurers operating in this market and in what ways. Our results suggest that underwriting profitability was worse in the post-ACA period: Generally, loss ratios and losses per enrollee were significantly higher in the post-reform time period. On the other hand, insurer administrative expenses were significantly lower post-2014. Furthermore, we show that these effects are not uniform across all insurers in the market.