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A Brief Analysis of Profitability Trends for the 2019 Individual and Small Group Health Insurance Markets

 

July 2, 2020

 

Health plans across the country submitted their Supplemental Health Care Exhibits (SHCE) on April 1, 2020, as part of the 2020 National Association of Insurance Commissioners’ (NAIC) annual financial statements.  The SHCE contains financial performance metrics, membership, and Preliminary MLR at the state level.  Subscribers to Mark Farrah Associates’ (MFAs) Health Coverage Portal or the SHCE & MLR Data have access to this important information.  MFA examined some key findings from its latest analysis of the SHCE, including a focus on performance within Individual and Small Group comprehensive insurance segments.  Plans in these two segments face the added constraint of a standard (minimum) MLR (Medical Loss Ratio).

Segment Profitability Overview

With the onset of the ACA in 2014, trend analysis starting the year before allows for a look at the ACA’s impact and course since December 2013.  Beginning with the individual segment, total enrollment peaked in 2015 with nearly 14.7 million members and has dropped 28% since.  Current Individual segment membership stands at approximately 10.6 million members, essentially back to 2013 levels.  While membership reached its peak in 2015, profitability for health insurance companies reached its low point with a nearly $6 billion underwriting loss.  Since then, through years of premium increases which outpaced growth in medical spending, companies have now posted three consecutive years of underwriting gains for the segment.

For the small group segment, membership has declined every year since the onset of the ACA with a cumulative drop of 36.5%.  While also reaching a low point in 2015, profitability has been the norm for this segment overall, including steady improvements since 2015.  Since 2015, total underwriting gain for the segment is up 177%.  Furthermore, 2019 marks the first year, since reporting began in 2010, where profitability for the small group segment surpassed that of the large group segment.  Overall, commercial risk enrollment, currently standing at 55 million, declined another 2.7% in 2019, and almost 18% since 2013. 

 

 

Individual Comprehensive Segment

The big story for the Individual segment is the sustained three-year period of profitability, even after facing steady declines in enrollment.   Premiums since 2013 have increased by 120.4% on a per member per month (PMPM) basis.  Individual claims incurred rose by 116.7% on a PMPM basis since 2013.  2019 marked the first time since 2015 where the growth in medical claims expenses outpaced that of premiums.  While Premiums grew 2.1%, Medical Claims increased by 9.5% on a PMPM basis for 2019.

Focusing on the segment leaders for this analysis, we will look at four-year trends in membership, claims incurred PMPM, adjusted premium PMPM, and their SHCE-reported MLR.

Individual Segment - Members

Company 2016 2017 2018 2019
 Centene 426,049  852,961  1,246,117  1,608,117 
 GuideWell 749,036  988,211  1,175,758  1,141,595 
 HCSC 1,162,797  915,598  850,546  846,928 
 Anthem 1,092,008  1,183,616  561,201  599,848 
 BCBSNC 374,699  525,382  475,000  469,530 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

Segment leadership is based on 2019 SHCE-reported membership by company.  Centene continued its rapid growth within the segment, reporting a 29.1% increase in individual enrollment.  Centene made notable gains in FL, GA, TX & CA.  Among the top 5 in the segment last year, Kaiser's enrollment dropped nearly 28% in 2019 with notable declines in VA & GA.  From 2018 to 2019, the entire Individual segment lost 444,000 members. 

Individual Segment - Incurred Claims PMPM

Company 2016 2017 2018 2019
 Centene $288  $256  $251  $268 
 GuideWell $343  $403  $422  $480 
 HCSC $341  $398  $438  $536 
 Anthem $345  $382  $417  $437 
 BCBSNC $389  $419  $488  $524 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement


Increases in medical costs have continued to occur within the Individual segment.  Average incurred claims PMPM increased from $197 in 2013 to $428 in 2019, a 116.7% increase.  Overall, the segment saw a 9.5% growth in claims PMPM in 2019.  HCSC experienced the largest increase, growing to $536 PMPM in 2019 from $438 PMPM in 2018, or 22.4%. 

Individual Segment - Adjusted Earned Premium PMPM

Company 2016 2017 2018 2019
 Centene $252  $324  $342  $336 
 GuideWell $412  $474  $541  $601 
 HCSC $336  $483  $645  $623 
 Anthem $374  $436  $556  $561 
 BCBSNC $443  $538  $639  $631 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

Premium PMPM grew slightly between 2018 and 2019 by 2.1%.  Representing the smallest year over year increase since 2013.  Nevertheless, 2019’s premium PMPM of $510 PMPM are 120% greater than in 2013.  For 2019, GuideWell reported a 11.1% increase in premium PMPM, the largest increase of the top 5 plans.  HCSC’s premium PMPM decreased 3.3% in 2019 after a large 34% increase in 2018.

Individual Segment - Weighted Average MLR

Company 2016 2017 2018 2019
 Centene 110.0%  80.0%  76.1%  81.3% 
 GuideWell 80.1%  85.3%  78.7%  80.6% 
 HCSC 95.2%  82.4%  68.5%  86.5% 
 Anthem 88.3%  88.3%  76.1%  79.0% 
 BCBSNC 85.5%  77.8%  76.7%  83.4% 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

The Medical Loss Ratio (MLR) illustrates the relationship between premium and medical costs.  After a record year of profitability in 2018, it is not surprising to see increasing average MLRs due to lower premium increases and increased medical spending in 2019.  For the segment leaders, all five companies reported higher MLRs in 2019.  Of the leading plans, HCSC, with the highest MLR of 86.5%, still reported an underwriting gain for the segment.  

It is important to note that Mark Farrah Associates is reporting all data as filed with the NAIC (National Association of Insurance Commissioners) in the annual SHCE.  We are not adjusting the data to account for differences in the number of reporting plans between 2013 and 2019 nor have we adjusted for any missing plans year over year.  For purposes of this analysis, MFA has calculated a weighted average MLR based upon adjusted premium.   Additionally, Mark Farrah analysts chose to use the NAIC Statement of Revenue and Expenses financial reporting for Centene’s Celtic Insurance Company over the NAIC SHCE to avoid distortion in premium dollars caused by an intercompany-ceded reinsurance agreement with Health Net Life.  

Small Group Comprehensive Segment

While the Small Group segment has not experienced the same volatility in premiums and claims as the Individual segment, it has lost considerable membership (36.5%) since 2013 with small businesses opting to either self-insure or drop health insurance coverage for their employees.  Focusing on the segment leaders for this analysis, we will look at four-year trends in membership, claims incurred PMPM, adjusted premium PMPM and segment leaders’ SHCE-reported MLR.

Small Group Segment - Members

Company 2016 2017 2018 2019
 UnitedHealth 2,454,888  2,304,117  2,497,280  2,373,118 
 HCSC 1,122,545  1,113,402  1,168,945  1,242,755 
 Anthem 916,943  864,220  763,153  655,515 
 Humana 802,477  745,120  604,300  470,719 
 CareFirst 373,706  377,157  309,682  317,315 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

The five segment leaders, based on membership, include UnitedHealth, HCSC, Anthem, Humana, and CareFirst.  HCSC & CareFirst both reported membership growth in 2019, while United, Anthem and Humana reported losses in membership.  Humana reported 22% fewer small group members for 2019, while Anthem’s membership dropped 14%.  Overall, the segment membership was down 7.4% in 2019.

Small Group Segment - Incurred Claims PMPM

Company 2016 2017 2018 2019
 UnitedHealth $356  $380  $399  $421 
 HCSC $372  $380  $407  $419 
 Anthem $337  $359  $392  $434 
 Humana $197  $224  $248  $309 
 CareFirst $268  $271  $364  $370 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

Medical costs continue to rise in the small group segment.  Average incurred claims PMPM have increased from $292 in 2013 to $397 in 2019, a 36% increase.   Overall, the segment saw a 5.5% growth in claims PMPM in 2019.   UnitedHealth reported near segment average growth in its claims PMPM of 5.6%.  Humana experienced a 24.3% jump and Anthem reported a 10.5% increase.  CareFirst reported the lowest increase among the segment leaders of 1.5%.

Small Group Segment - Adjusted Earned Premium PMPM

Company 2016 2017 2018 2019
 UnitedHealth $431  $464  $486  $509 
 HCSC $425  $467  $501  $499 
 Anthem $407  $435  $480  $537 
 Humana $239  $279  $303  $344 
 CareFirst $337  $339  $450  $461 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

Average adjusted premium PMPM for the segment rose from $349 in 2013 to $477 in 2019, a 36.7% increase.  Overall, the segment saw a 5.2% growth in premium PMPM in 2019.  Four of the five segment leaders reported increases in premiums to offset medical cost increases for 2019.  Humana’s premium PMPM increased 13.6% over 2018 while Anthem’s premium PMPM increased 11.9%.  Humana has consistently reported the lowest premium PMPM among the segment leaders over the past four years.

Small Group Segment - Weighted Average MLR

Company 2016 2017 2018 2019
 UnitedHealth 83.5%  83.0%  82.9%  83.6% 
 HCSC 87.8%  81.9%  82.1%  84.6% 
 Anthem 83.9%  83.7%  83.0%  81.9% 
 Humana 84.6%  82.2%  83.8%  91.3% 
 CareFirst 80.2%  80.7%  81.6%  80.7% 
Source: Health Coverage Portal TM, Mark Farrah Associates, Supplemental Health Care Exhibit as reported in the NAIC Annual Financial Statement

Overall, the leading plans have been able to better manage MLRs within the Small Group segment as compared to larger challenges in the Individual Segment.  For 2019, most notable among the segment leaders was Humana’s 91.3% average MLR a significant increase from 2018.  This increase reflects the 24.3% increase in claims PMPM which were not covered by increases in premiums.

Conclusion

The Small Group segment continued to experience profitability growth in 2019, marking four years of increasing underwriting gains.  After the record setting year of profitability in the individual segment in 2018, plans reported a lower, yet still healthy, gain of $4.2 billion. In 2019, 67.6% of individual plans reported gains which is down from 73% in 2018.  For both segments, growth in premiums fell short of that of medical costs in 2019.  In the Individual segment, years of increases in insurance premiums have outpaced growth in medical spending, leading to concerns about the overall affordability of health insurance.  While the modest growth in premium PMPM may be a sign that premiums are stabilizing, proper balancing of premium increases and cost control will be needed to maintain profitability for the insurance companies and affordability for the consumer.  Mark Farrah Associates will continue to analyze and report on important ACA and plan performance related topics.  Please stay tuned for future analysis briefs with valuable insights about the health care industry.

SCHE Data

The data used in this analysis brief was obtained from Mark Farrah Associates' Health Coverage Portal TM using Supplemental Health Care Exhibit (SHCE) data as reported in the NAIC Annual Financial Statement.  Each year, MFA updates its products with the latest SHCE data.  Additionally, MFA maintains financial data as well as enrollment and market share for the health insurance industry in the subscription-based Health Coverage Portal TM.

For more information about our products, refer to the product videos and brochures available on Mark Farrah Associate’s website or call 724-338-4100.

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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Glossary

Weighted Average MLR – For analysis purposes, Mark Farrah Associates calculated average Preliminary MLR weighted on the adjusted premium for each company by segment.  The MLRs used in the calculation are average ratios based upon 2016– 2019 as reported in the NAIC’s Supplemental Health Care Exhibit.

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