COVID-19 spurred growing profitability in insurance markets last year, KFF says

Dive Brief:

  • Health insurers were profitable across all major markets last year, amid an unprecedented drop in medical spending and utilization in the spring due to COVID-19-related shutdowns.
  • A new report from the Kaiser Family Foundation analyzing data in the Medicare Advantage, Medicaid managed care, individual and fully insured group markets found across all four, insurers had higher gross margins per enrollee per month in 2020 than in 2019, from an average of $188 for privately run MA plans, to $71 for Medicaid managed care.
  • Payers also paid a smaller percentage of premiums as claims last year than the year prior, the report found. Generally, lower medical loss ratios implies insurers have more left over as income.

Dive Insight:

Major U.S. payers reported historically high profits in 2020 as medical utilization flatlined during the early months of the coronavirus pandemic. Though utilization began to slowly recover in the back half of the year, health spending overall was lower than in 2019, making 2020 the first time in recorded history that U.S. health spending has actually dropped.

Some analysts expect rising demand for pent-up care could lead to lower profits in 2021, as COVID-19 cases wane in the U.S. and vaccinations accelerate.

But that’s not yet evident in first quarter financial results from major insurers.

Anthem’s net income grew more than 9% year over year in the first quarter to $1.7 billion; Centene reported $699 million in profit, up from $46 million in the prior year quarter; Humana reported a profit of $828 million, up a whopping 75% year over year; and Molina had a net income of $228 million, compared to $178 million during the same time last year. Meanwhile, UnitedHealth, the parent company of the biggest U.S. private insurer, reported net income of $4.9 billion, up almost 44% year over year.

All save Humana hiked their full-year guidance following the results.

The KFF analysis of insurers’ financial data found by the end of 2020, gross margins per member per month across the four major markets was relatively high, while MLRs were relatively low or flat, compared to the past few years. That’s an indicator of strong financial performance though not a direct translation to profitability, researchers said, as it doesn’t account for administrative expenses or taxes.

“However, a sharp increase in margins from one year to the next, without a commensurate increase in administrative costs, could indicate that these health insurance markets have become more profitable during the pandemic,” KFF said.

Rebecca Pifer/Healthcare Dive, KFF data

 

KFF found gross margins among individual market and fully insured group plans were 4% and 16% higher, respectively, than in 2019. However, compared to 2018, margins among fully insured group plans remained flat while margins among individual market plans were 14% lower. Researchers chalked that decrease up to the fact that individual market insurers overcorrected when setting premiums in 2018, following the loss of cost-sharing subsidy payments.

Gross margins among MA plans in 2020 were 24% and 31% higher than in 2019 and 2018, respectively. For managed care organizations in the Medicaid market, they were 45% and 34% higher.

The report also looked at insurers’ medical loss ratios, another marker of profitability.

Annual MLRs in MA dropped two percentage points in 2020 compared to 2019 and 2018, while in Medicaid they dropped four percentage points from 2019, and three compared to 2018.

In the fully insured group market, MLRs dropped two percentage points from 2019, and were about the same as 2018.

Individual market loss ratios also decreased by two percentage points from 2019, though they were actually up by four percentage points compared to 2018. Researchers pointed out MLRs in the individual market were quite low prior to COVID-19, as the ACA exchanges have generally been profitable for several years as the once-shaky market stabilized.

Despite increasing profitability last year, KFF stressed the pandemic’s long-term financial ramifications on insurers remain uncertain, as a bounceback in utilization and shifting regulatory requirements could dampen future income.

Payers in MA that fall short of federally required MLR levels face penalties, including potential expulsion from the program. That could result in payers offering more generous coverage and additional benefits to beneficiaries, researchers said. In Medicaid, states have had the option to modify payments and risk sharing agreements during COVID-19, so plans have less wiggle room to pocket additional profits.

Many commercial insurers have waived out-of-pocket costs for things like telehealth visits and COVID-19 diagnostic tests and treatment, while some even offered consumers a break from premiums at some point last year. And ACA medical loss ratio rebates to consumers this year are expected to total in the billions of dollars, with individual and group market insurers expecting to shell out $2.1 billion in rebates to consumers this fall.

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