Mark Farrah Associates Notes Profit Margin Convergence
KENNEBUNK, Maine--(BUSINESS WIRE)--Mark Farrah Associates' (www.markfarrah.com) latest Healthcare Business Strategy report noted a curious convergence among the nation's seven leading health plans' profit margins, net earnings or net income divided by revenues. Four of the seven plans reported slight downturns in year-over-year profitability through the second quarter of 2013. The combined average profit margin for these plans was 5.4% for the first six months of 2013, well within the 5% to 5.5% range observed since 2010. However, roughly 2 percentage points separated the most profitable plan from the least profitable plan among the major health insurance carriers through the second quarter of 2013, down from a nearly 9% range in 2008.
According to Debra Donahue, Vice President Mark Farrah Associates (MFA), "The primary cause of the convergence is the medical loss ratio requirements, due to health insurance reform. Historically, health plans that managed costs below the medical loss ratio requirements set by the government (80% - 85% depending on the segment) could reap those benefits in the form of higher profit margins. Now, they must give back those savings to the customer in the form of rebates."
The seven leading health plans cover 45% of the people in the United States, so the financial health of these plans is important. According to Donahue, "As long as these plans continue to maintain the 5% to 5.5% average range, there is nothing disconcerting about the margin convergence. The concern will be if that average starts to drop."
In the latest Healthcare Business Strategy report, MFA reviewed enrollment and financial trends for Aetna, Cigna, Health Care Service Corporation (HCSC), Humana, Kaiser Permanente, UnitedHealth Group and WellPoint. Membership data, financial statistics and observations were gleaned from the October 2013 Health Insurer Insights™ series, a Mark Farrah Associates publication. To read the full text of "Profit Margins Converge for Top Health Plans," visit the Analysis Briefs library on Mark Farrah Associates' website www.markfarrah.com.
About Mark Farrah Associates (MFA)
MFA is a leading data aggregator and publisher providing health plan market data and analysis tools for the healthcare industry. Committed to simplifying analysis of health insurance business, our products include Health Coverage Portal™, County Health Coverage™, Health Insurer Insights™, Medicare Business Online™, Medicare Benefits Analyzer™ and Health Plans USA™.
Mark Farrah Associates
Ann Marie Wolfe, 207-985-8484