2023 Health Insurance Segment Profitability

 

August 21, 2024

In this brief, Mark Farrah Associates (MFA) compared year-over-year profitability for the Individual, Employer-Group, Medicare Advantage, and managed Medicaid health insurance segments. Financial insights were gleaned from aggregated 2022 and 2023 National Association of Insurance Commissioners (NAIC) statutory financial data from MFA’s Health Coverage Portal™.

Individual Segment Performance

According to financial statements filed by insurers and estimated by Mark Farrah Associates, enrollment in individual medical plans totaled approximately 21.3 million, as of December 2023, as compared to 17.6 million at the end of 2022. This gain of nearly 3.7 million members builds on the growth experienced by the segment over the past 3 years.   

For 2023, premiums earned increased nearly 20% while health care services (medical expenses) incurred grew 18.1% since 2022. On a per member per month (PMPM) basis, which accounts for changes in membership and reporting plans, premiums increased 4.5%, while medical expenses grew 3%. The average medical expense ratio for the individual segment was 85.3%, as compared to 86.5% the previous year.   

 

 

Amongst the top plans, Elevance reported the lowest medical expense ratio with 78.1%.  Segment leader, Centene, reported the second lowest medical expense ratio amongst the top plans, with 79.4% for 2023. HCSC experienced increased medical expenses, which greatly outpaced premium growth, driving their medical expense ratio up to 85.1%.

 

 

Employer-Group Segment Performance

Health insurance companies in the Employer-Group risk segment reported 44.7 million members, as of December 31, 2023, down 3.4% from 2022. For health insurers, profitability decreased for 2023. In 2023, premiums earned increased 1%, and medical expenses increased 2.1% as compared to 2022. On a PMPM basis, premiums earned increased 5.0% over 2022, while medical expenses grew by 6.1%. The growth in medical expenses, which more than offset the increase in premiums, pushed the average medical expense ratio for this segment up to 87.2% for 2023, from 86.2% in 2022.

 

 

Elevance experienced the largest decrease in its medical expense ratio, dropping 3.5 points to 81% due to an 8.2% increase in premiums PMPM. HCSC’s 4.6% increase in premiums PMPM did not keep pace with medical expense growth, leading to an 89.8% medical expense ratio, the highest amongst the segment leaders.

 

 

Medicare Advantage Performance

Medicare Advantage (MA) segment growth is continuing at a rapid rate. According to CMS Medicare Advantage enrollment reports aggregated by MFA in Medicare Business Online™, total Medicare Advantage plan enrollment was approximately 32.7 million; a growth of almost 2.3 million members since 2022. Health insurers continue to invest in MA growth opportunities for increased enrollment, revenue, and profits as the number of people entering retirement increases each year. Year-over-year profitability for this segment, like the Group segment, has decreased. For 2023, premiums earned increased 14.7% while medical expenses increased 16.2% from 2022. On a PMPM basis, premiums earned have increased 7.1% from 2022, while medical expenses grew by 8.5%. The growth in medical expenses, which was greater than the increase in premiums, pushed the average medical expense ratio for this segment up to 87.2% for 2023, from 86.1% in 2022.

 

 

Turning our attention to the segment leaders, Humana was the only plan reporting a lower medical expense ratio for 2023. CVS reported a 15.5% increase in medical expenses PMPM, the highest amongst the segment leaders. The large increase in expenses was not offset by the 12.4% increase in premiums PMPM which led to a larger increase in their medical expense ratio. UnitedHealth, Elevance and Centene all reported medical expenses PMPM increases above 8.5% more than offsetting increases to premiums.

 

 

Managed Medicaid Performance

The Centers for Medicare & Medicaid Services (CMS) December 2023 Medicaid and CHIP membership was 85.6 million members, which is down approximately 7 million members from December 2022.  For 2023, premiums earned increased 3.7% while medical expenses incurred increased 5.4% from 2022. On a PMPM basis, premiums earned increased 2.3% over 2022, while medical expenses increased 4.1%. The increase in premiums did not offset the increase in medical expenses PMPM, pushing the medical expense ratio up to 87.9% in 2023. 

 

 

With rising medical expenses, the segment average medical expense ratio increased year-over-year, all but one of the segment leaders reported financial results leading to increasing ratios. Elevance, for the second year in a row, experienced the largest change in their medical expense ratio, growing from 86.6% in 2022 to 89.2% in 2023. This increase was due to an almost 5% increase in medical expenses PMPM which was not covered by premium gains. Independence Blue Cross was the only leading plan to report a decrease in their medical expense ratio for 2023, which remains well above the segment average.

 

 

Conclusion

For 2023, the individual segment experienced both growth in membership and in overall profitability. The other segments did not fare as well as growth in medical expenses outpaced increases in premiums. At a consolidated level, health plans reported almost $19 billion in underwriting gains for 2023 which is down from the gain of $24.2 billion in 2022. Mark Farrah Associates will continue to analyze and report on important health insurance segment performance and related topics. Stay tuned for future analysis briefs with valuable insights about the health care industry.

About Our Analysis

Medical expense ratio is calculated by dividing health care costs/claims incurred by premiums earned. This ratio indicates the amount of premium dollars spent on medical expenses. The higher the ratio, the less room there is for the plan to pay for its administrative costs, potentially impacting profitability. Per member per month (PMPM) calculations are also used to determine the amount of premium dollars earned and the amount of medical costs incurred for each member on a monthly basis. These calculations are performed by dividing premiums or medical claims incurred by the number of reported member months for the plan.

Data for this analysis was sourced from Mark Farrah Associates’ Health Coverage Portal™, Annual Exhibit of Premiums, Enrollment & Utilization (EPEU) and the Analysis of Operations by Lines of Business, as reported in the NAIC Financial Statements. Approximately 80% of the health insurance market is represented within the exhibit. Managed Medicaid plans & California HMO plans that do not report to the NAIC, along with NAIC-reporting Life, Accident & Health, and Property & Fraternal insurance plans do not file the exhibit. Health plans only offering specialty lines of health insurance are not included in this analysis. To improve the accuracy of our assessment, premiums earned, and member month data were estimated based on the NAIC Statement of Revenue and Expenses, due to incomplete or erroneous EPEU reporting by a small number of plans.

About Mark Farrah Associates (MFA)

Mark Farrah Associates (MFA) is a leading data aggregator and publisher providing health plan market data and analysis tools for the healthcare industry. Our product portfolio includes Health Coverage Portal™, County Health Coverage™, 5500 Employer Health ^plus, Medicare Business Online™, Medicare Benefits Analyzer™, and Health Plans USA™. For more information about these products, refer to the informational videos and brochures available under the Our Products section of the website or call 724-338-4100.

Healthcare Business Strategy is a FREE brief that presents analysis of important issues and developments affecting healthcare business today. If you would like to be added to our email distribution list, please submit your email address to the "Subscribe to MFA Briefs" section at the bottom of this page.