September 15, 2020
COVID-19 has significantly impacted both the health & well-being of the population and the economies of the world. For U.S. health insurance companies, the repercussions of the virus became evident late in the first quarter, thus making the pandemic’s effect on financial and enrollment results most noticeable in second quarter. In this brief, Mark Farrah Associates (MFA) compared second quarter, year-over-year profitability for the Individual, Employer-Group, Medicare Advantage, and managed Medicaid health insurance segments. Financial insights were gleaned from aggregated 2Q19 and 2Q20 National Association of Insurance Commissioners (NAIC) statutory financial data from MFA’s Health Coverage Portal™.
Individual Segment
According to financial statements filed by insurers and estimates by Mark Farrah Associates, enrollment in individual medical plans totaled approximately 15.3 million as of June 2020, as compared to 14.8 million a year ago. Historically speaking, enrollment in the segment peaks during first quarter, and declines in subsequent quarters. 2020 marks the first time since 2014 where enrollment in the second quarter was larger than the first. This growth may be fueled in part due to Americans who have lost insurance coverage from their employers due to lay-offs and business closures, and turning to the individual market to maintain their coverage. Furthermore, enrollment as of 2Q20 was larger than 2Q19; a YOY growth that has not been seen since 2015. After experiencing three consecutive years of overall profitability, as measured by the cumulative underwriting gain for the segment, industry stakeholders are watching closely to see how COVID-19 will impact the segment.
For second quarter 2020, premiums earned decreased 1.9% while health care services incurred (medical expenses) incurred dropped 2.4% from second quarter 2019. On a PMPM basis, which accounts for changes in membership and reporting plans, premiums decreased 2.4%, slightly less than the 2.9% decrease in medical expenses. Through the first two quarters of 2020, the average medical expense ratio for the individual segment was 73.6%, as compared to 73.9% the previous year. Anthem was the only segment leader with results leading to a higher medical expense ratio at the end of 2Q20 vs 2Q19.
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Mid-year Profitability - Individual Segment |
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|
2Q19 |
2Q20 |
Change |
|
|
Health Premiums Earned |
$36,320,054,344 |
$35,633,086,221 |
-1.9% |
|
Health Care Services Incurred |
$26,852,892,872 |
$26,218,458,098 |
-2.4% |
|
Med Expense Ratio |
73.9% |
73.6% |
|
|
Member Months |
73,383,516 |
73,761,733 |
0.5% |
|
Premiums PMPM |
$495 |
$483 |
-2.4% |
|
Health Care Expenses PMPM |
$366 |
$355 |
-2.9% |
Source: Health Coverage Portal™, Mark Farrah Associates, Quarterly Exhibit of Premiums, Enrollment and Utilization as reported in the NAIC Financial Statements |
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After many years of increasing medical expenses, the overall decline in spending reported at the end of June is significant. Health care expenses (medical expense) was up 4.2% on a PMPM basis as of March 31, 2020. However, the impact of COVID-19 was felt during the second quarter, as medical expense dropped 9.4% when compared to 2Q19, as individual members chose to postpone elective medical care.
Employer-Group Segment
Health insurance companies in the Employer-Group risk segment reported 49.8 million members as of June 30, 2020, down 2.3% from June 30, 2019. This decline is larger than the 1.7% seen between 2Q19 and 2Q18, possibly due in part to the economic conditions from the pandemic. For health insurers, profitability has improved in 2020. For second quarter 2020, premiums earned decreased 2.0% and medical expenses dropped 6.7% from second quarter 2019. On a PMPM basis, premiums earned have increased 1.2% over 2Q19, while medical expenses decreased by 3.7%. The growth in premiums and decline in medical expenses pushed the average medical expense ratio for this segment down to 77.6% for 2Q20 from 81.4% in 2Q19.
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Mid-year Profitability - Group Segment |
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|
2Q19 |
2Q20 |
Change |
|
|
Health Premiums Earned |
$81,763,613,011 |
$80,136,825,652 |
-2.0% |
|
Health Care Services Incurred |
$66,577,653,539 |
$62,147,808,240 |
-6.7% |
|
Med Expense Ratio |
81.4% |
77.6% |
|
|
Member Months |
178,125,313 |
172,590,865 |
-3.1% |
|
Premiums PMPM |
$459 |
$464 |
1.2% |
|
Health Care Expenses PMPM |
$374 |
$360 |
-3.7% |
Source: Health Coverage Portal™, Mark Farrah Associates, Quarterly Exhibit of Premiums, Enrollment and Utilization as reported in the NAIC Financial Statements |
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Medicare Advantage
Medicare Advantage (MA) market penetration remains strong. According to CMS Medicare Advantage enrollment reports aggregated by MFA in Medicare Business Online™, total Medicare Advantage plan enrollment is approximately 25.2 million. 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 second quarter profitability for this segment has also increased, materially. MA plans will compete by offering new pricing and product options to beneficiaries with the Annual Election Period (AEP) for Medicare Advantage and prescription drug plans beginning October 15, 2020.
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Mid-year Profitability - Medicare Segment |
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|
2Q19 |
2Q20 |
Change |
|
|
Health Premiums Earned |
$109,947,914,998 |
$125,480,377,326 |
14.1% |
|
Health Care Services Incurred |
$93,117,467,375 |
$99,519,600,194 |
6.9% |
|
Med Expense Ratio |
84.7% |
79.3% |
|
|
Member Months |
104,492,562 |
113,493,011 |
8.6% |
|
Premiums PMPM |
$1,052 |
$1,106 |
5.1% |
|
Health Care Expenses PMPM |
$891 |
$877 |
-1.6% |
Source: Health Coverage Portal™, Mark Farrah Associates, Quarterly Exhibit of Premiums, Enrollment and Utilization as reported in the NAIC Financial Statements |
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For second quarter 2020, premiums earned increased 14% and medical expenses incurred rose 6.9% from second quarter 2019. On a PMPM basis, premiums earned increased 5.1% over 2Q19, while medical expenses decreased 1.6% due in part to seniors delaying elective and other non-critical care. The decrease in medical expenses helped push the Medical Expense Ratio down to 79.3%.
Managed Medicaid
At the time of this analysis, the Centers for Medicare & Medicaid Services (CMS) had not reported June 2020 Medicaid and CHIP membership. CMS reported 73.5 million members for May 2020 which is up nearly 1.9 million members, or 2.6%. June 2020 statutory reporting from Medicaid in Managed Care Organizations (MCOs), representing approximately 70% of Medicaid enrollees, indicates a 5.8% increase from June 2019 and a 6.7% increase from December 2019. This increase, resulting from the COVID-19’s impact on the economy, is the largest since 2014 and 2015, a period of growth primarily due to Medicaid expansion.
For year to date second quarter 2020, premiums earned increased 12.9% while medical expenses incurred increased 4.9% from second quarter 2019. On a PMPM basis, premiums earned increased 9.4% over 2Q19, while medical expenses increased 1.7%. The increase in premiums earned pushed the Medical Expense Ratio down to 85.6% from 92% in 2Q19. It is important to note that Health Care Expenses PMPM for the 3 months of 2Q20 were down 4% for the Medicaid segment.
|
Mid-year Profitability - Managed Medicaid Segment |
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|
2Q19 |
2Q20 |
Change |
|
|
Health Premiums Earned |
$100,181,262,042 |
$113,084,316,200 |
12.9% |
|
Health Care Services Incurred |
$92,201,693,529 |
$96,752,746,402 |
4.9% |
|
Med Expense Ratio |
92.0% |
85.6% |
|
|
Member Months |
234,235,756 |
241,648,139 |
3.2% |
|
Premiums PMPM |
$428 |
$468 |
9.4% |
|
Health Care Expenses PMPM |
$394 |
$400 |
9.7% |
Source: Health Coverage Portal™, Mark Farrah Associates, Quarterly Exhibit of Premiums, Enrollment and Utilization as reported in the NAIC Financial Statements |
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Conclusion
As of June 2020, all four health care segments are signifying increased levels of profitability for health insurers over 2019. Due to the impact COVID-19 has had on the providers ability to administer elective and preventive care coupled with the public’s concern about exposure to the virus, it is not surprising that we have seen a decrease in medical expenses. At the segment level, the commercial risk segment has reported a larger decrease in medical expenses as compared to the declines in the government segments. While this analysis of mid-year segment performance sheds light upon profitability trends for 2020, final financial results will be revealed in the spring. Will there be a release of pent up demand for medical services in the second half of 2020? While the answer to that question may not be immediately clear, 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™, Quarterly Exhibit of Premiums, Enrollment & Utilization (EPEU) 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. To improve the accuracy of our assessment, premiums earned, and member month data was estimated based upon 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™, Medicare Business Online™, Medicare Benefits Analyzer™, 5500 Employer Health Plus™, 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.
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