Top Health Plans Feel Recession
Top Health Plans Feel Recession
February 17, 2009
Top Health Plans Feel Recession
Leading U.S. health insurance plans' profitability declined through September 30, 2008. Membership growth for the quarter also slowed for some of the top health plans in the nation. Third quarter results, typically the period when government entities renew their health insurance contracts, may be seen as a herald for January's open-enrollment season. With eight health plans covering 58% of the total insured population in the nation, their financial health bears watching.
This brief presents key findings from MFA's assessment of financial and enrollment trends among eight top health insurers: Aetna, CIGNA, Health Care Service Corporation (HCSC), Health Net, Humana, Kaiser Permanente, UnitedHealth Group, and WellPoint. Financial and membership data and observations were gleaned from the January 2009 Health Insurer Insight™ series.
Profitability Declining
Profitability for most leading U.S. health insurance plans declined throughout 2008, a result of challenging economic times.
UnitedHealth Group's Health Care Service (HCS) business unit saw the largest drop in profit margins,* falling from a high of 9.3% for the nine months ended September 30, 2007 to a low of 6.6% as of June 30, 2008. Aetna's Health Care sector profits remained consistent for 2007, hovering between 6.9% and 7.1%. Beginning in the first quarter of 2008, Aetna's profits began a slow descent arriving at 6% year to date as of September 30, 2008. WellPoint's profit margins were also consistent in 2007 averaging around 5.4%. However, as with most plans it saw an ominous change in first quarter 2008. WellPoint's 25% drop in earnings for the three months ended March 30, 2008 may have been an opportune warning. While other plans reacted to the drop in first quarter margins by placing fault with the down turning economy and mainly restated earnings, WellPoint immediately implemented a corrective action plan that resulted in improved earnings in second and third quarters 2008.
Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals and their subsidiaries reported a net loss of $399 million through third quarter 2008. Kaiser attributed the drop, from a net income of $654 million the previous year, to the volatile financial markets and declining employment. Cigna, HCSC, Health Net and Humana also reported declining net incomes for the nine months ended September 30, 2008.
Membership Growth Slows
Total membership for these eight plans increased collectively by nearly 6.2 million between September 30, 2007 and September 30, 2008, up 5%. Administrative Services Only (ASO) enrollment increased 8.7% and fully-insured (Risk) enrollment grew 1% year over year for these plans.
Source: Health Insurer Insights™ reports for for Aetna, CIGNA, Health Care Services Corporation, Health Net,
Kaiser Permanente, UnitedHealth, and WellPoint.
Aggregate total enrollment for all plans throughout the country grew to 227.3 million with annual increases for ASO enrollment up 5.7% and Risk membership up 2.6%. While the numbers look good year over year, the change between the second and third quarters is not so rosy.
ASO enrollment for the top health plans increased a mere 0.17% between June 30, 2008 and September 30, 2008, down from 1.3% for the same period in 2007. Risk enrollment for these eight plans increased by just 43,438 members for third quarter 2008.
Health Plan Observations
Cigna, Health Net and Kaiser all saw declines in total membership between the second and third quarters of 2008. However, Health Net was the only plan among top competitors that saw a decline in membership year over year. Between September 30, 2007 and September 30, 2008, four companies increased risk enrollment, while all seven companies with ASO enrollment reported increases.
Source: Health Insurer Insights™ reports for for Aetna, CIGNA, Health Care Services Corporation, Health Net,
Kaiser Permanente, UnitedHealth, and WellPoint.
CIGNA and Humana experienced the largest growth rates over the year, increasing their total enrollment by 16.4% and 7.3%, respectively. CIGNA gained nearly 1.7 million new members between 3Q07 and 3Q08. However, CIGNA's total membership declined by 167,000 for the quarter, including a 98,000 member drop in ASO products. Both Humana's risk and ASO business lines grew from 3Q07 to 3Q08. Humana saw total membership increase by 577,200 for a total of 8.4 million medical lives as of September 30, 2008. Moreover, Humana's risk and ASO membership increased marginally in the third quarter, growing 11,800 and 17,700 members respectively.
Both Aetna and UnitedHealth reported gains of more than 1 million new covered lives during the year, with both showing modest gain for the quarter as well. HCSC also saw gains in both types of business. WellPoint saw mixed results with an increase of roughly 1.1 million ASO members, offset by an approximate loss of 560,000 fully insured lives for the year. Kaiser's Risk enrollment continues to remain essentially flat.
Acquisitions by leading companies were the prime driver of membership increases for the year. CIGNA gained 340,000 new members from the Sagamore Health Network purchase and its Great-West deal added 1.761 million members. Aetna's growth came from both organic gains and the acquisition of Schaller Anderson, which added approximately 500,000 Medicaid members. UnitedHealth's membership gains were primarily the result of acquisitions. The additions of Unison Health, Fiserv, and Sierra Health have been the source of most of its new membership between 3Q08 and 3Q07.
Reductions in net income for these eight top plans were primarily the result of write-offs and write-downs in their substantial investment portfolios due to the challenging economic conditions. Declining membership growth for the third quarter is another casualty of the weakening economy. Let us hope that these are not harbingers of things to come with the January 2009 open enrollment season.
* Profit margin is net income (loss) divided by total revenues.
Health Insurer Insights™
For consistent updates about membership changes and to keep informed about business strategies for top health insurers, subscribe to Health Insurer Insights™ and receive updated company profiles every three months. Profiles are available for Aetna, Assurant, Blue Cross Blue Shield of Massachusetts, CIGNA, Coventry Health Care, Harvard Pilgrim Health Care, Health Care Service Corporation (HCSC), Health Net, Humana, Kaiser Permanente, UnitedHealth Group and WellPoint. For a free demonstration of Health Insurer Insights or other MFA products, email info@markfarrah.com.
About Mark Farrah Associates (MFA)
Since 1997, Mark Farrah Associates (MFA) has been recognized as a leader in analyzing health insurance business. Committed to simplifying the analysis of the health insurance industry by providing market data and analysis tools, our products include Medicare Business Online™, the Health Coverage Portal™, Health Insurer Insights™, and Health Plans USA™.
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