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.
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.
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%.
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.
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.
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.
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%.
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.
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.
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.
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.
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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.