Second Quarter 2024 Health Insurance Segment Profitability

 

October 24, 2024

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 2Q23 and 2Q24 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 24.9 million, as of June 2024, as compared to 19.6 million a year ago. This gain of nearly 5.3 million members in large part due to Medicaid redeterminations.

For the second quarter 2024, premiums earned increased 30.8% while health care services (medical expenses) incurred grew 27.6% from second quarter 2023. On a PMPM (per member per month) basis, which accounts for changes in membership and reporting plans, premiums increased 1.6%, while medical expenses declined by -.9%. Through the first two quarters of 2024, the average medical expense ratio for the individual segment was 80.4%, as compared to 82.4% the previous year.   

 

Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements

 

Health Care Service Corp. (HCSC), CVS & GuideWell Mutual Holding Group (Guidewell) all reported financial results showing an increased medical expense ratio at the end of 2Q24, as compared to 2Q23. With premium growth being outpaced by medical expenses, GuideWell reported the largest increase in its medical expense ratio, increasing to 84.3% from 82.7% in 2Q23.  GuideWell reported a 5.8% increase in medical spending on a PMPM basis, which was partially offset by a 3.9% increase in premiums PMPM, leading to the largest reported increase in in the average medical expense ratio amongst the leading plans. Centene’s 72.9% medical expense ratio is down from 77.3% from a year ago. UnitedHealth joins the top 5 leading plans for the segment this year, for the first time since 2016, with notable gains in TX, AZ and FL.

 

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 43.6 million members, as of June 30, 2024, down 3.5% from June 30, 2023. This decline outpaces the 2.3% drop in membership experienced between 2Q23 and 2Q22. For health insurers, profitability has decreased slightly. For the second quarter 2024, premiums earned increased 1.2% and medical expenses increased 1.5% from second quarter 2023. On a PMPM basis, premiums earned have increased 5.9% over 2Q23, while medical expenses grew by 6.3%. Growth in premium was outpaced by the increase in medical expenses, moving the average medical expense ratio for this segment up to 84.3% for 2Q24, from 84.1% in 2Q23.

 

Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements

 

Four of the top five plans in the segment are reporting higher ratios so far for 2024.  BCBS of Michigan is impacted by a 10.8% increase in medical expenses PMPM, reported financial results indicating a 85.5% medical expense ratio, up from 82% in 2Q23. While UnitedHealth reported similar increases in medical expenses, resulting in a 79.6% medical expense ratio which is the second lowest amongst the leading plans. Kaiser was the only leading plan which reported a decrease in its medical expense ratio due to a 7.6% increase in premiums PMPM which outpaced growth in medical expenses PMPM.

 

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 was approximately 34.1 million: a growth of almost 2 million members since June 2023. With some plans facing financial pressure related to the lower 2024 Star Ratings and the entire segment facing sweeping changes to drug coverage coming in 2025, keeping an eye on financial performance in the segment is very important. Year-over-year second quarter profitability for this segment, has decreased. For second quarter 2024, premiums earned increased 10.5% while medical expenses increased 13.7% from second quarter 2023. On a PMPM basis, premiums earned have increased 4.5% over 2Q23, while medical expenses grew by 7.5%. The growth in medical expenses, which was greater than the increase in premiums expenses, pushed the average medical expense ratio for this segment up to 88.4% for 2Q24, from 85.9% in 2Q23.

 

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, all plans reported financial results indicating an increase for their medical expense ratios, squeezing segment profitability. For CVS, a 15.8% increase in medical expenses on a PMPM basis helped to raise the ratio to 89.3%, second highest to Elevance. Centene’s reported 13.7% increase in premiums PMPM, well above the segment average, fell a bit short of offsetting the 14.3% increase in medical expenses PMPM, driving their medical expense ratio up to 84.4%, the lowest amongst the leaders.

 

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

Centers for Medicare & Medicaid Services (CMS) reported Medicaid and CHIP membership of almost 80 million for June 2024, down from 93.6 million members in June 2023. 

For year-to-date second quarter 2024, premiums earned decreased 2% while medical expenses incurred increased 1.2% from second quarter 2023. On a PMPM basis, premiums earned increased 16% over 2Q23, while medical expenses increased 19.9%. The increase in premiums PMPM fell behind the increase in medical expenses PMPM, pushing the medical expense ratio up to 90.2% in 2Q24. 

 

Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements

 

Three of the five segment leaders continued to report financial results leading to a medical expense ratio below the segment average of 90.2%. UnitedHealth experienced the largest change in their medical expense ratio, growing from 85.5% in 2Q23 to 88.4% in 2Q24. This growth was due to increases in medical expenses that were not offset by premium growth on a PMPM basis. Independence Blue Cross continued to report a higher-than-average medical expense ratio at 94.7%, up from 94.0% in 2Q23.

 

Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization Exhibit as reported in the NAIC Financial Statements

 

Conclusion

On a consolidated level for second quarter 2024, health plans are reporting an 89.8% medical expense ratio, which is up from 87.6% at the end of June 2023. Rising medical expense ratios will negatively impact payer profitability and therefore it is no surprise that the increase is a driving factor in the reported 29% decrease in underwriting gains through June 2024 vs 2023.  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 and the NAIC Statement of Revenue and Expenses. 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™, 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.

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