An Analysis of Profitability for the Individual and Small Group Health Insurance Markets in 2023

 

June 10, 2024

Health plans across the country submitted their Supplemental Health Care Exhibits (SHCE) on April 1, 2024, as part of the 2023 National Association of Insurance Commissioners’ (NAIC) annual financial statements. The SHCE contains financial performance metrics, membership, and preliminary Affordable Care Act’s (ACA’s) Medical Loss Ratios (MLRs) – at the state level. Subscribers to Mark Farrah Associates’ (MFAs) Health Coverage Portal^TM or the SHCE & MLR Data have access to this important information. In this Business Strategy Report, MFA presents key findings from its latest analysis of the SHCE data, focusing specifically on performance within the Individual and Small Group comprehensive health/medical insurance segments, as plans in these two segments face the added constraint of a standard (minimum) MLR.

Segment Profitability Overview

Beginning with the Individual segment, year-end 2023 membership was over 17.7 million members, up from 13.8 million members in 2022. This is primarily due to former Medicaid recipients moving into heavily subsidized Marketplace/ACA Exchange plans. Both segment membership and segment profitability for health insurance companies trended up in 2023, with a $3.2 billion underwriting gain, or 3.0% of adjusted premium revenues for the Individual market.

While the declines in Small Group segment membership continued in 2023, down year-over-year by 7.4% to 8.5 million, the segment remained more profitable per member than the Large Group segment. Small Group saw an underwriting gain of $1.2 billion for 2023, down from $1.4 billion in 2022 and a decline of 14.7%. In comparison, Large Group declined 20.3% for the same period.

 

 

Individual Comprehensive Segment

After reporting a minor underwriting (profit) margin of 0.5% in 2022, the Individual segment reported a gain of $3.2 billion in 2023, a modest 3.0% of adjusted premium revenue. The segment also experienced enrollment growth of 28.7%, expanding to 17.7 million members for 2023. Adjusted Premiums Earned PMPM (per member per month**) increased 2.0% to a segment average of $549 PMPM. The average incurred medical claims expense of $482 PMPM for 2023 was an increase of 0.2% on a PMPM basis from 2022 and has been stable for the last three years. While focusing on segment leaders for this analysis, MFA looked at four-year trends in membership, medical claims incurred PMPM, adjusted premium PMPM, and SHCE-reported MLR**.

 

 

Segment leadership is based on 2023 SHCE-reported membership by company. Centene’s Individual enrollment nearly doubled from 2022 to 2023, with an increase of over 1.7 million members, for the market leader. CVS Health reported the second largest increase; it gained over 1.2 million members, and this moved the company into the top tier carriers. Cigna, with a gain of 638,327 Individual members, also joined the leading carriers this year. The entire Individual segment grew by over 3.9 million members in 2023.

 

 

Health insurers reported a 19.3% increase in total spending on medical costs for the 2023 Individual segment. In contrast, the average incurred claims PMPM increased from $481 in 2022 to $482 in 2023, a 0.2% change. For the top Individual carriers, CVS Health experienced the largest increase, rising 21.8% to $382 PMPM in 2023, up from $314 PMPM in 2022. Health Care Service Corporation (HCSC – which operates Blues plans in five states) continues to have the highest incurred claims PMPM at $591, followed by GuideWell (also known as Florida Blue) at $586 PMPM.

 

 

Nationwide average Individual Premiums PMPM grew by 2.1% in 2023 to a peak of $549 PMPM. CVS Health vaulted into the top five plans for 2023 with the lowest premium PMPM among them. Both Cigna and Centene lowered their average premium PMPM significantly, with declines of -19.3% and -7.9%, respectively.

 

 

The Medical Loss Ratio (MLR) illustrates the relationship between premiums and medical costs. For the segment leaders, HCSC and Cigna were the only carriers to report increases for weighted average 2023 MLR. HCSC experienced a large increase in their 2021 average MLR due in part to significant risk corridor revenue (from previous years) that was recognized in 2020, leading to an abnormally low MLR.

Please Note: MFA is reporting all data as filed with the NAIC in the annual SHCE. We are not adjusting the data to account for differences in the number of reporting plans between 2020 and 2023. For this analysis, MFA has calculated a weighted average MLR** based upon adjusted premiums.

 

Small Group Comprehensive Segment

Overall, the Small Group segment profitability remains strong; though the segment continues to lose membership - down another 7.4% for 2023 with small businesses opting to either self-insure or drop health insurance coverage for their employees. Focusing on the segment leaders for this analysis, MFA looked at four-year trends in membership, claims incurred PMPM, adjusted premium PMPM and segment leaders’ SHCE-reported MLR.

 

 

The five Small Group segment leaders, based on membership, remained unchanged since 2021. These carriers are UnitedHealth and four Blue Cross Blue Shield (BCBS) entities: HCSC, Elevance, CareFirst, and BCBS of Michigan (BCBS MI). UnitedHealth experienced the largest decrease in membership of the top plans, reporting a 13.1% drop in enrollment. BCBS MI was the only leading carrier to report an increase in Small Group members in 2023. Overall, segment membership is down over 1.5 million members since 2020.

 

 

Average incurred claims PMPM increased from $459 in 2022 to $496 in 2023, an 8.2% increase. CareFirst reported the lowest increase in incurred claims PMPM among the segment leaders with a 3.4% year-over-year change. BCBS MI reported the lowest claims PMPM at $427, with a 12.6% change for the period, the highest among the segment leaders.

 

 

Average adjusted premium PMPM for the segment rose from $540 in 2022 to $580 in 2023, a 7.6% increase. Since 2020, and despite significant changes in the last four years, Small Group PMPM premiums have increased an average of 7.7% annually. All five segment leaders reported increases in premiums PMPM for 2023. Following a significant increase between 2021 and 2022, Elevance’s 2023 premium PMPM increased 4.6% over 2022, the smallest increase among its top five peers.

 

 

The ACA requires health insurers in the Individual and Small Group markets to spend at least 80% of their premium revenues on clinical care and quality improvements. Overall, the leading plans have been able to better manage MLRs within the Small Group segment as compared to larger challenges within the Individual segment. For 2023, the most notable among the segment leaders was UnitedHealth’s 80.8% and HCSC’s 89.6% weighted average MLRs, with premiums PMPM of $653 and $592, respectively.

Conclusion

For both the Individual and Small Group segments, underwriting gains have returned to pre-pandemic levels. Premium PMPM growth for the Individual segment has stabilized with low single digit changes since pre-2020, which is good news for consumers. While both segments have been impacted by the pandemic-influenced seesawing of medical spending, particularly between 2020 and 2021, both segments were profitable for insurers in 2023, where the growth of enrollment in the Individual segment that began in 2020 continued through 2023. Available data for the first quarter of 2024 shows this growth trend continuing. Mark Farrah Associates will have more to report on 2024 enrollment and profitability trends in the coming months.

* PMPM– Per Member Per Month is an amount divided by member months; one member enrolled for 12 months equals 12 member months.

** Weighted Average MLR – For analysis purposes, Mark Farrah Associates calculated average preliminary MLRs weighted on the adjusted premiums for each company by segment. The MLRs used in the calculation are average ratios based upon 2020 – 2023 as reported in the NAIC’s Supplemental Health Care Exhibit.

About the SCHE Data

The data used in this  Business Strategy Report was obtained from Mark Farrah Associates' Health Coverage Portal ^TM using Supplemental Health Care Exhibit (SHCE) data, for medical (non-specialty) plans, as reported in the NAIC Annual Financial Statement. CA managed care plans do not file the SHCE. CHIP enrollment is reported under government business in the SHCE. 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.

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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