September 30, 2022
U.S. health insurance companies have been navigating the effects of the COVID-19 pandemic for almost two years. Now that the worst impacts from the pandemic are behind us, has relative 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 second quarter, year-over-year profitability for the Individual, Employer-Group, Medicare Advantage, and managed Medicaid health insurance segments. Financial insights were gleaned from aggregated 2Q21 and 2Q22 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 June 2022, as compared to 16.3 million a year ago. This gain of over 1.3 million members builds on the growth experienced by the segment during the COVID-19 impacted years of 2020 and 2021.
For second quarter 2022, premiums earned increased 16.5% while health care services (medical expenses) incurred grew 18.7% from second quarter 2021. On a PMPM basis, which accounts for changes in membership and reporting plans, premiums increased 3%, while growth in medical expenses was 5%. Through the first two quarters of 2022, the average medical expense ratio for the individual segment was 82.9%, as compared to 81.3% the previous year.
Centene was the only segment leader to report financial results showing a lower medical expense ratio at the end of 2Q22, as compared to 2Q21. Centene reported premiums growth and retraction in medical spending resulted in an average medical expense ratio of 77.2% down from 83.2% a year ago. Bright Health experienced the largest increase in its medical expense ratio due to a notable drop in average premiums PMPM mostly related to their expansion into Texas. GuideWell also experienced a notable increase in medical expenses on a PMPM basis, driving their medical expense ratio up to 85.6%.
Employer-Group Segment Performance
Health insurance companies in the Employer-Group risk segment reported 46.3 million members, as of June 30, 2022, down 2.2% from June 30, 2021. This decline is smaller than the 5% drop experienced between 2Q21 and 2Q20. For health insurers, profitability has improved slightly for 2022. For second quarter 2022, premiums earned increased 1.7% and medical expenses increased 1.1% from second quarter 2021. On a PMPM basis, premiums earned have increased 6.1% over 2Q21, while medical expenses grew by 5.4%. The growth in premium, which more than offset the increase in medical expenses pushed the average medical expense ratio for this segment down to 83.7% for 2Q22, from 84.2% in 2Q21.
The majority of the segment leaders reported financial results leading to a lower medical expense ratio at the end of 2Q22, as compared to 2Q21. Anthem experienced the largest increase in its medical expense ratio due to an 8.3% increase in medical expenses PMPM. Kaiser reported a 0.8% decrease in medical expenses PMPM, along with a 1.5% increase in premiums PMPM, resulting in the largest decrease in its medical expense ratio 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 29.7 million: a growth of more than 2.3 million members since last June. 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 second quarter profitability for this segment, like the Group segment has increased. For second quarter 2022, premiums earned increased 21.6% and medical expenses increased 20.4% from second quarter 2021. On a PMPM basis, premiums earned have increased 7.7% over 2Q21, while medical expenses grew by 6.6%. The growth in premium, which was greater than the increase in medical expenses, pushed the average medical expense ratio for this segment down to 85.4% for 2Q22, from 86.3% in 2Q21.
Turning our attention to the segment leaders, Anthem, and CVS both reported smaller than average increases in medical expenses PMPM, which lead to larger decreases in their medical expense ratios. CVS also benefited from a 7.7% increase in premiums PMPM, more than offsetting their 4.1% increase in medical expenses PMPM.
Managed Medicaid Performance
At the time of this analysis, the Centers for Medicare & Medicaid Services (CMS) had not reported June 2022 Medicaid and CHIP membership. CMS reported 89 million members for May 2022, which is up approximately 5 million members from June 2021.
All but one of the segment leaders reported financial results leading to a medical expense ratio below the segment average of 86.5%. Anthem experienced the largest change in their medical expense ratio, growing from 83.8% in 2021 to 85.9% in 2021. This increase was due to increases in medical expenses not covered by premium gains. Independence Blue Cross continues to report a higher than the segment average medical expense ratio at 94.9%, down slightly from 2Q21.
Last year at this time, 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. So far in 2022, some normalcy has returned to the insurance industry in terms of growth in premium and medical expenses. At a consolidated level, health plans are reporting a 12.3% increase in underwriting gains through June 2022 vs 2021. These gains are stemming from a slight improvement in industry wide medical expense ratio, as we have discussed above, coupled with a notable increase in premium dollars from an overall growth of insured members. 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™, Quarterly Exhibit of Premiums, Enrollment & Utilization (EPEU) 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 was estimated based upon 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™, 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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