June 14, 2023
U.S. health insurance companies navigated the effects of the COVID-19 pandemic for almost two years between 2020 and 2021. With the worst impacts from the pandemic behind us for 2022, has normalcy returned to the health insurance industry, or are insurers still dealing with the lingering effects of COVID-19? In this brief, Mark Farrah Associates (MFA) compared year-over-year profitability for the Individual, Employer-Group, Medicare Advantage, and managed Medicaid health insurance segments. Financial insights were gleaned from aggregated 2021 and 2022 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 17.6 million, as of December 31,2022, as compared to 16.7 million a year ago. This gain of over 1 million members builds on the growth experienced by the segment during the COVID-19 impacted years of 2020 and 2021.
For 2022, premiums earned increased 12% while health care services (medical expenses) incurred grew 10.3% since 2021. On a per member per month (PMPM) basis, which accounts for changes in membership and reporting plans, premiums decreased 0.7%, while medical expenses shrank by 2.2%. The average medical expense ratio for the individual segment was 86.5%, as compared to 87.8% the previous year.
Segment leader, Centene, reported the lowest medical expense ratio amongst the top plans, with 79.9% for 2022, down from 85.1% in 2021. Centene’s lower ratio of medical expenses to premiums was mostly due to a 5.2% decrease in medical costs PMPM. While Bright Health exited the Individual market for 2023, their medical expense ratio dropped to 86.4% for 2022, mostly due to a substantial drop in medical spending PMPM. Oscar experienced the largest decrease in premiums on a PMPM basis amongst leading plans, driving their medical expense ratio up to 99.6%.
Employer-Group Segment Performance
Health insurance companies in the Employer-Group risk segment reported 46.3 million members, as of December 31, 2022, down almost 2% from 2021. For health insurers, profitability has improved for 2022. In 2022, premiums earned increased 1.8%, and medical expenses decreased 1% as compared to 2021. On a PMPM basis, premiums earned increased 6.2% over 2Q21, while medical expenses grew by 3.3%. The growth in premium, which more than offset the increase in medical expenses, pushing the average medical expense ratio for this segment down to 86.2% for 2022, from 88.7% in 2021.
All segment leaders reported financial results leading to a lower medical expense ratio at the end of 2022, as compared to 2021. HCSC experienced the largest decrease in its medical expense ratio due to a 6.3% increase in premiums PMPM. UnitedHealth’s 5% increase in premiums PMPM drove their medical expense PMPM down to 80.5%, the lowest amongst the segment leaders.
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 30.3 million; a growth of almost 2.3 million members since 2021. Health insurers continue to invest in MA growth opportunities for increased enrollment, revenue, and profits as the number of people entering retirement increases each year. Year-over-year profitability for this segment, like the Individual and Group segments, has increased. For 2022, premiums earned increased 20.8% and medical expenses increased 19.5% from 2021. On a PMPM basis, premiums earned have increased 6% over 2021, while medical expenses grew by 4.9%. The growth in premium, which was greater than the increase in medical expenses, pushed the average medical expense ratio for this segment down to 86.1% for 2022, from 87% in 2021.
Turning our attention to the segment leaders, CVS reported a 1.1% increase in medical expenses PMPM, the lowest amongst the segment leaders. The small increase in expenses was more than offset by a 3.6% increase in premiums PMPM which led to a larger decrease in their medical expense ratio. UnitedHealth, Humana, and Elevance all reported premium PMPM increases above 6.5% more than offsetting increases to medical expenses.
Managed Medicaid Performance
The Centers for Medicare & Medicaid Services (CMS) December 2022 Medicaid and CHIP membership was 92.6 million members, which is up approximately 6 million members from December 2021. For 2022, premiums earned increased 14.6% while medical expenses incurred increased 14.5% from 2021. On a PMPM basis, premiums earned increased 4.8% over 2021, while medical expenses increased 4.7%. The increase in premiums offset the increase in medical expenses PMPM, pushing the medical expense ratio down slightly to 86.5% in 2022.
While the segment average medical expense ratio was relatively flat year-over-year, all but one of the segment leaders reported financial results leading to increasing ratios. Elevance experienced the largest change in their medical expense ratio, growing from 84.4% in 2021 to 86.6% in 2022. This increase was due to an almost 10% increase in medical expenses PMPM which was not covered by premium gains. UnitedHealth was the only leading plan to report a decrease in their medical expense ratio for 2022, which remains below the segment average.
By the end of 2021, health insurers were reporting substantial year-over-year increases in medical spending as the pent-up demand of pandemic-related delayed care began to be experienced by providers and insurers. For 2022, it appears that normalcy has returned to the insurance industry in terms of growth in premiums and medical expenses. At a consolidated level, health plans are reporting $25.4 billion in underwriting gains for 2022 which is slightly above the average gain of $24.3 billion, as compared to the COVID-19 impacted years of 2020 ($33.1 billion in gain), and 2021 ($15.5 billion in gain). These gains are primarily stemming from an improvement in industry wide medical expense ratio, as illustrated in the Individual, Group, Medicare, and Medicaid segments as discussed above. 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™, Annual Exhibit of Premiums, Enrollment & Utilization (EPEU) and the Analysis of Operations by Lines of Business, as reported in the NAIC Financial Statements. 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 were estimated based on 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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