September 28, 2021
U.S. health insurance companies have been navigating the effects of the COVID-19 pandemic for well over a year. For insurers, the effect of the Pandemic was felt late in the first quarter of 2020, as elective & preventative care was significantly reduced, leading to a significant reduction in medical expenses experienced by insurers. It was clear at the time, that the demand for health care services would be delayed, not eliminated, and this demand would eventually be unleashed into the U.S. health system. 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 Performance
According to financial statements filed by insurers and estimates by Mark Farrah Associates, enrollment in individual medical plans totaled approximately 16.1 million as of June 2021, as compared to 15.4 million a year ago. This gain of nearly 730,000 members builds on the growth experienced by the segment during the COVID-19 impact in 2020.
For second quarter 2021, premiums earned increased 6.7% while health care services (medical expenses) incurred jumped 17.8% from second quarter 2020. On a PMPM basis, which accounts for changes in membership and reporting plans, premiums increased 2.4%, significantly less than the 13.1% increase in medical expenses. Through the first two quarters of 2021, the average medical expense ratio for the individual segment was 81.3%, as compared to 73.6% the previous year.
| Profitability - Individual Segment | |||
| 2Q20 | 2Q21 | Change | |
| Health Premiums Earned | $35,634,234,040 | $38,004,087,643 | 6.7% |
| Health Care Services Incurred | $26,219,402,188 | $30,884,503,757 | 17.8% |
| Med Expense Ratio | 73.6% | 81.3% | |
| Member Months | 73,775,369 | 76,836,712 | 4.1% |
| Premiums PMPM | $483 | $495 | 2.4% |
| Medical Expenses PMPM | $355 | $402 | 13.1% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
|||
All segment leaders reported financial results showing a higher medical expense ratio at the end of 2Q21, as compared to 2Q20. HCSC experienced the largest increase in its medical expense ratio due to a notable drop in premiums PMPM. Centene also experienced a decline in profitability mostly due to above average increases medical expenses, over 2020. Anthem reported a 6.3% increase in medical expenses PMPM, resulting in the smallest increase in its medical expense ratio amongst the segment leaders.
| Medical Expense Ratio - Individual Segment Leading Plans | ||
| Company | 2Q20 | 2Q21 |
| Centene | 71.9% | 83.1% |
| Guidewell | 72.8% | 80.1% |
| Anthem | 68.5% | 70.6% |
| HCSC | 66.3% | 76.8% |
| Molina | 71.9% | 78.2% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
||
Employer-Group Segment Performance
Health insurance companies in the Employer-Group risk segment reported 47.4 million members, as of June 30, 2021, down 4.8% from June 30, 2020. This decline is larger than the 2.3% seen between 2Q20 and 2Q19, possibly due in part to the continued economic conditions and labor shortages spurred by the pandemic. For health insurers, profitability has declined in 2021. For second quarter 2021, premiums earned increased .1% and medical expenses increased 8.7% from second quarter 2020. On a PMPM basis, premiums earned have increased 4.7% over 2Q20, while medical expenses grew by 13.7%. The growth in premium, which was more than offset by the jump in medical expenses pushed the average medical expense ratio for this segment up to 84.2% for 2Q21, from 77.6% in 2Q20.
|
Profitability - Group Segment |
|||
|
2Q20 |
2Q21 |
Change |
|
|
Health Premiums Earned |
$80,398,584,317 | $80,442,073,184 | 0.1% |
|
Health Care Services Incurred |
$62,356,804,036 | $67,761,024,032 | 8.7% |
|
Med Expense Ratio |
77.6% | 84.2% | |
|
Member Months |
173,113,951 | 165,493,498 | -4.4% |
|
Premiums PMPM |
$464 | $486 | 4.7% |
|
Medical Expenses PMPM |
$360 | $409 | 13.7% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
|||
All segment leaders reported financial results showing a higher medical expense ratio at the end of 2Q21 as compared to 2Q20. HCSC experienced the largest increase in its medical expense ratio due to a notable drop in premiums PMPM, although HCSC benefited from a smaller increase in medical expense PMPM as compared to its peers. United reported a 13.6% increase in medical expenses PMPM, mostly offset by an 11.3% increase in premiums PMPM, resulting in the smallest increase in its medical expense ratio amongst the segment leaders.
|
Medical Expense Ratio - Group Segment Leading Plans |
||
|
Company |
2Q20 |
2Q21 |
|
UnitedHealth |
77.5% | 79.1% |
|
Anthem |
71.1% | 78.8% |
|
HCSC |
75.2% | 85.3% |
|
BCBSMI |
75.3% | 84.8% |
|
Humana |
78.1% | 84.4% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
||
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 is approximately 27.8 million: a growth of more than 2.5 million members since last September. 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, like the Individual and Group segments has also decreased. For second quarter 2021, premiums earned increased 12.3% and medical expenses increased 22.2% from second quarter 2020. On a PMPM basis, premiums earned have increased 1.6% over 2Q20, while medical expenses grew by 10.6%. The growth in premium, which was offset by the increase in medical expenses, pushed the average medical expense ratio for this segment up to 86.3% for 2Q21, from 79.3% in 2Q20.
|
Profitability - Medicare Segment |
|||
|
2Q20 |
2Q21 |
Change |
|
|
Health Premiums Earned |
$125,554,947,370 | $140,963,433,131 | 12.3% |
|
Health Care Services Incurred |
$99,582,914,082 | $121,674,834,891 | 22.2% |
|
Med Expense Ratio |
79.3% | 86.3% | |
|
Member Months |
113,547,971 | 125,437,681 | 10.5% |
|
Premiums PMPM |
$1,106 | $1,124 | 1.6% |
|
Medical Expenses PMPM |
$877 | $970 | 10.6% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
|||
Turning our attention to the segment leaders, United and CVS both reported larger than average increases in medical expenses PMPM, which lead to larger increases in its medical expense ratios. CVS benefited from a 3.7% increase in premiums PMPM, the largest amongst segment leaders, resulting in the lowest medical expense ratio.
|
Medical Expense Ratio - Medicare Segment Leading Plans |
||
|
Company |
2Q20 |
2Q21 |
|
UnitedHealth |
75.3% | 83.7% |
|
Humana |
80.4% | 85.0% |
|
CVS |
76.1% | 83.3% |
|
Anthem |
80.8% | 88.6% |
|
Centene |
80.2% | 85.2% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
||
Managed Medicaid Performance
At the time of this analysis, the Centers for Medicare & Medicaid Services (CMS) had not reported June 2021 Medicaid and CHIP membership. CMS reported 82.3 million members for April 2021, which is up nearly 7.3 million members from June 2020, and 2.2 million members since December 2020. 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 2021, premiums earned increased 11.7% while medical expenses incurred increased 13.2% from second quarter 2020. On a PMPM basis, premiums earned decreased .7% over 2Q20, while medical expenses increased just .6%. The decrease in premiums coupled with the increase in medical expenses PMPM pushed the medical expense ratio up to 86.9% from 85.7% in 2Q20.
|
Profitability - Managed Medicaid Segment |
|||
|
2Q20 |
2Q21 |
Change |
|
|
Health Premiums Earned |
$114,857,678,008 | $128,348,742,161 | 11.7% |
|
Health Care Services Incurred |
$98,434,481,166 | $111,475,733,302 | 13.2% |
|
Med Expense Ratio |
85.7% | 86.9% | |
|
Member Months |
243,279,149 | 273,775,368 | 12.5% |
|
Premiums PMPM |
$472 | $469 | -0.7% |
|
Medical Expenses PMPM |
$405 | $407 | 0.6% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
|||
All but one of the segment leaders reported financial results leading to a higher medical expense ratio at the end of 2Q21 vs. 2Q20. CVS’s modest 1.9% increase in premiums, coupled with a decline in medical expense PMPM, resulted in the lowest ratio of the segment leaders. Molina experienced a 20% increase in medical expenses PMPM, which was not offset by its increases in premium dollars, resulting in the largest increase in the ratio of medical expenses to premiums amongst segment leaders.
|
Medical Expense Ratio - Managed Medicaid Segment Leading Plans |
||
|
Company |
2Q20 |
2Q21 |
|
Centene |
85.0% | 86.4% |
|
Anthem |
81.6% | 83.8% |
|
UnitedHealth |
80.5% | 85.0% |
|
Molina |
78.4% | 85.0% |
|
CVS |
85.8% | 83.0% |
Source: Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements |
||
Conclusion
Last year at this time, health insurers were mostly reporting a decline in medical spending related to the COVID-19 pandemic’s impact on elective/noncritical care. Simply put, patients were delaying care and spending on medical care was down across all segments. At that time, industry analysts and insurers speculated on when the pent-up demand of delayed care would be experienced by providers and insurers. The answer to that question is now clear as insurers are reporting substantial year-over-year increases in medical spending. The greatest YOY change was felt in the commercial lines, with both segments experiencing over 13% in increased medical expenses on a PMPM basis. It is important to note that the commercial lines also saw the greatest reduction of medical spending during the COVID-19 impacted quarters of 2020.
On the government side, the Medicare segment also experienced a jump in medical expenses related to the release of pent-up health care demand, along with the ongoing costs associated with the pandemic. The Medicaid segment, however, has not shown the same impact as both premiums and medical expenses have remained relatively flat on a PMPM basis. 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 TM, 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 monthly 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.