How the Affordable Care Act Impacted the Individual Market

Reforming the Affordable Care Act (ACA) has had lasting impacts on the individual health insurance market. Intending to reshape a dysfunctional system, the ACA included incentives for insurers to manage risk and competition fairly, regardless of an individual’s income or medical history.

But changes in policy and administration caused enrollment, premium rates, and insurer participation to fluctuate over time. Because the individual market serves as a safety net for nearly 17 million Americans who are between jobs, in early retirement, or underinsured, consistency and accessibility of these plans is critical.

A market evolution analysis published in the March edition of Health Affairs highlighted these changes between 2014 and 2019. The authors encouraged policymakers to continue expanding accessibility in order to ensure comprehensive coverage for patients and financial success for payers.  

Many new insurers entered the market with the passage of the ACA. Plans that were previously Medicaid only expanded their coverage to the individual market, expecting that lower premiums would allow them to grow their market share. And for-profit national insurers set premiums higher than competitors to avoid attracting high-risk enrollees.

Average premium rates were lower than expected due to new market entrants. Rates in 2015 increased slightly after this success and because policies around risk-corridor programs and grandmothered plans were eliminated. This meant some plans had a higher than expected risk-adjusted payment.

As knowledge and data grew, plans were able to make more informed decisions. 2016 rates increased to account for additional analysis. Health plans with smaller provider networks had less negotiating power while plans in largely urban areas had to keep premium rates low in order to stay competitive.

To contain costs, many health plans narrowed their network of participating providers, researchers explained. This posed little threat to urban areas but a risk to those in rural areas with already limited access to a variety of providers. Despite this investment analysts said the growth in premium rates was beneficial to the market, allowing it to stabilize towards an equilibrium.

When the threat of repeal and replace crept onto the scene, many insurers increased their premiums in anticipation of lower enrollment. By 2018, fewer plans were involved in the individual marketplace as the fear continued.

Because the ACA was not repealed, premium, participation, and enrollment rates began to balance out again in 2019 and things continued to resettle in 2020.

The study authors point out that these national statistics often mask the state-by-state impacts of changing policies. Several states regulate their own marketplace, which has resulted in a slower rate of premium growth compared to federally run marketplaces.

Yet the experience of the individual market demonstrates that expanded coverage has led to over 20 million individuals receiving care. Many of these individuals are low-income earners so the supplemental policies have enabled them to be more financially stable. And individuals with pre-existing conditions are no longer excluded from coverage.

Stable enrollment in the individual market over time also helped maintain participation, meaning many areas are exceeding the number of required enrollees due to the financial success they’ve shown in participation.

But challenges to affordability for those who do not qualify for a subsidy still restrict access for many individuals, the analysis concluded. This problem is not uniquely on payers to overcome. State or federal-wide policy intervention that limits the sale of short-term plans, expands subsidies, and encourages reinsurance will help to continue to expand coverage options for individuals. In turn, this will allow individual insurers to broaden their risk pool and promote financial success.