The COVID pandemic has disrupted longstanding tendencies in well being spending, utilization, and employment, and created challenges for insurers to precisely predict their prices and set premiums. Within the early months of 2020, use of well being providers dropped sharply, as elective procedures had been canceled, and many individuals delayed or went with out care attributable to issues of contracting COVID. Utilization has since rebounded, however there are indications that non-COVID care stays beneath pre-pandemic ranges.
On this temporary, we look at how insurance coverage markets carried out in 2021, the newest 12 months with annual knowledge. We use monetary knowledge reported by insurance coverage firms to the Nationwide Affiliation of Insurance coverage Commissioners (NAIC) and compiled by Mark Farrah Associates to take a look at medical loss ratios and gross margins within the Medicare Benefit, Medicaid managed care, particular person (non-group), and totally insured group (employer) medical insurance markets by the tip of every 12 months. A extra detailed description of every market is included within the Appendix.
We discover that, by the tip of 2021, gross margins per enrollee had returned to pre-pandemic ranges within the Medicare Benefit market, whereas gross margins within the particular person and group markets had been decrease than pre-pandemic ranges and Medicaid margins had been larger than pre-pandemic ranges. Medicare Benefit plans have far larger per individual gross margins—greater than double these seen in different markets in 2021.
GROSS MARGINS
One approach to assess insurer monetary efficiency is to look at per enrollee gross margins, or the quantity by which complete premium earnings exceeds complete claims prices per enrollee per 12 months. Gross margins are an indicator of monetary efficiency, however constructive margins don’t essentially translate into profitability since they don’t account for administrative bills or tax liabilities. Whereas gross margins should not equal to profitability in absolute phrases, modifications in gross margins could be indicative of modifications in profitability (assuming administrative prices and tax legal responsibility are related).
By way of the tip of 2021, gross margins within the Medicare Benefit market averaged $1,730 per enrollee, just like ranges seen in 2018 and 2019 earlier than the pandemic started. In 2021, gross margins for Medicare Benefit plans had been considerably larger than these seen within the particular person ($745 per enrollee), totally insured group ($689 per enrollee), and Medicaid managed care ($768 per enrollee) markets.
Amongst totally insured group plans, gross margins had been 17% decrease in 2021 than in 2019. Particular person market gross margins had been 36% decrease in 2021 than in 2019. Nevertheless, particular person market plans had been arguably priced too excessive within the years main as much as the pandemic, as mentioned extra beneath. For the reason that rollout of the ACA Marketplaces in 2014, the person market has seen substantial volatility in margins (Determine 2) and loss ratios.
On common, gross margins within the Medicaid managed care market had been larger in 2021 than they had been pre-pandemic. 5 publicly traded for-profit companies account for half of all Medicaid managed care group (MCO) enrollment. Earnings experiences from 2021 present continued year-over-year development in enrollment and Medicaid revenues (for the companies that present Medicaid-specific income data), which could possibly be driving will increase in total Medicaid margins. Nevertheless, states might use quite a lot of danger mitigation mechanisms to offer monetary safety and limits on monetary danger for states and plans that is probably not accounted for within the knowledge we used on this evaluation. In 2021, greater than half of MCO states reported implementing COVID-19 associated “danger corridors” (the place states and well being plans comply with share revenue or losses), which led to the recoupment of funds from plans throughout many states. Gross margins reported for 2021 might not mirror recoupments of funds that will happen after the reporting interval.
MEDICAL LOSS RATIOS
One other approach to assess insurer monetary efficiency is to take a look at medical loss ratios, or the p.c of premium earnings that insurers pay out within the type of medical claims. Usually, decrease medical loss ratios imply that insurers have extra earnings remaining after paying medical prices to make use of for administrative prices or hold as income. Every medical insurance market has totally different administrative wants and prices, so decrease medical loss ratios in a single market don’t essentially imply that market is extra worthwhile than one other market. Nevertheless, in a given market, if administrative prices maintain largely fixed from one 12 months to the subsequent, a change in medical loss ratios may suggest a change in profitability.
Medical loss ratios are utilized in state and federal insurance coverage regulation in quite a lot of methods. Within the business insurance coverage (particular person and group) markets, insurers should problem rebates to people and companies if their loss ratios fail to succeed in minimal requirements set by the ACA. Medicare Benefit insurers are required to report loss ratios on the contract stage; they’re additionally required to problem rebates to the federal authorities if their MLRs fall wanting required ranges and are topic to extra penalties in the event that they fail to satisfy loss ratio necessities for a number of consecutive years. For Medicaid MCOs, CMS requires states to develop capitation charges for Medicaid to realize an MLR of no less than 85%. There is no such thing as a federal requirement for Medicaid plans to pay remittances in the event that they fail to satisfy their MLR threshold, however a majority of states that contract with MCOs do require remittances in no less than some circumstances.
The medical loss ratios proven on this problem temporary differ from the definition of MLR in the ACA and CMS Medicaid managed care ultimate rule, which makes some changes for high quality enchancment and taxes, and don’t account for reinsurance, danger corridors, or danger adjustment funds. (Notably, the well being insurer tax, which has been completely repealed beginning in 2021, was in impact in 2018 and 2020, however not 2019 or 2021). The chart beneath exhibits easy medical loss ratios, or the share of premium earnings that insurers pay out for advantages, with none modifications (Determine 3).
In 2021, loss ratios had been related throughout all markets. Easy loss ratios had been 87% within the Medicare Benefit market, 88% in each the person and totally insured group markets, and 86% within the Medicaid managed care market. Nevertheless, as a result of every market has totally different administrative wants and prices, this doesn’t suggest that the markets are related to one another in profitability.
Relatively, we are able to have a look at modifications within the path of loss ratios as a sign of modifications in profitability in a given market. Relative to 2019, common loss ratios within the Medicaid managed care market stay decrease (implying elevated profitability), whereas common loss ratios within the group and Medicare Benefit markets had been considerably larger than pre-pandemic ranges.
Particular person market loss ratios in 2021 are considerably larger than these seen within the years main as much as the pandemic. As talked about earlier, 2018 and 2019 had been exceptionally profitable years for the person market. Many plans fell wanting the ACA’s medical loss ratio necessities and had been subsequently required to problem massive rebates to shoppers based mostly on their 2018 and 2019 expertise.
DISCUSSION
Utilizing annual monetary knowledge reported by insurance coverage firms to state regulators, it seems well being insurers within the Medicare Benefit market noticed related monetary efficiency in 2021 as they did within the years main as much as the pandemic. Insurers within the Medicaid managed care market, in the meantime, noticed considerably higher efficiency and business insurers (notably within the particular person market) noticed worse efficiency than within the years main as much as the pandemic.
Throughout all markets, 2021 gross margins had been by far the best for Medicare Benefit plans. Medicare Benefit plans have each larger common prices and better premiums (largely paid by the federal authorities), as a result of Medicare covers an older, sicker inhabitants. So, whereas Medicare Benefit insurers spend an identical share of their premiums on advantages as different insurers in different markets, the gross margins—which embrace income and administrative prices—of Medicare Benefit plans are typically larger.
Probably spurred by the prospect of robust monetary returns, the Medicare Benefit market has grown considerably within the final decade, with greater than 50% of eligible beneficiaries anticipated to enroll in a Medicare Benefit plan in 2023. Insurers that fall wanting required loss ratio necessities for a number of years face penalties, together with the opportunity of being terminated. To keep away from such a danger, some Medicare Benefit insurers with loss ratios beneath 85% might take this chance to supply new or extra beneficiant additional advantages, reminiscent of over-the-counter allowances, meals following hospital stays, or transportation, along with health club memberships, dental, imaginative and prescient and listening to advantages which can be provided practically universally to assist retain and entice new enrollees.
Looking forward to coming years, the pandemic’s impact on insurer monetary efficiency stays unsure. The direct prices related to the pandemic stay laborious to foretell, as remedy prices might rise or fall relying on new variants or elevated inhabitants immunity. Moreover, the commercialization of COVID-19 vaccines and coverings will result in larger costs per dose, however complete prices may even depend upon the variety of doses (e.g., uptake of boosters), which is troublesome to foretell. There are additionally the oblique results of the pandemic to contemplate. Well being care utilization has largely rebounded to pre-pandemic ranges, although there are indications utilization stays suppressed for non-COVID care and there could possibly be extra pent-up demand for care that had been missed or delayed. For Medicaid, the unwinding of the continual enrollment provision on March 31 means states will start disenrollments which have been paused because the begin of the pandemic and will end in tens of millions of people shedding Medicaid protection. Medicaid MCOs might even see the general acuity of their membership enhance, which may have implications for total utilization and prices wanting forward.
This work was supported partially by Arnold Ventures. KFF maintains full editorial management over all of its coverage evaluation, polling, and journalism actions.
Strategies
We analyzed insurer-reported monetary knowledge from Well being Protection Portal TM, a market database maintained by Mark Farrah Associates, which incorporates data from the Nationwide Affiliation of Insurance coverage Commissioners (NAIC). We used the “Exhibit of Premiums, Enrollment, and Utilization” report for this evaluation. The dataset analyzed on this report doesn’t embrace California HMOs regulated by California’s Division of Managed Well being Care. Moreover, for Medicaid, there are 4 states (Arizona, California, New York, and Oregon) which have totally different reporting practices and subsequently constantly solely have partial NAIC knowledge obtainable.
We excluded plans that weren’t current within the NAIC demographics file, filed unfavourable values in any of the segments of curiosity, unfavourable or zero {dollars} in premiums and claims, or didn’t report for all variables that had been being analyzed. We additionally excluded plans reporting over 1,000 hospital days per 1,000 member months. We solely included plans that had been categorized as having a “medical” focus in our evaluation and exclude “specialty” plans that are categorized as “ancillary or supplemental profit plans.” We additionally excluded any plans from the U.S. territories. We corrected for plans that didn’t file “member months” or filed a unfavourable or zero “member month” worth within the annual assertion however did file present 12 months membership by imputing these values. If, after imputing, plans nonetheless didn’t have “member months,” they had been excluded.
The group market on this evaluation solely consists of totally insured plans. NAIC defines “Medicaid” as “enterprise the place the reporting entity costs a premium and agrees to cowl the complete medical prices of Medicaid subscribers.” This explicitly excludes Administrative Providers Solely (ASO) plans. We solely use “medical” targeted plans to assist exclude any specialty plans; nevertheless, pay as you go ambulatory well being plans (PAHPs), pay as you go inpatient well being plans (PIHPs), or Applications of All-Inclusive Take care of the Aged (PACE) plans could also be included within the evaluation attributable to NAIC’s definition of Medicaid.
Gross margins per enrollee had been calculated by subtracting the sum of complete incurred claims from the sum of unadjusted well being premiums earned and dividing by the whole variety of members.
Premiums for Medicare Benefit plans primarily encompass federal funds made to plans and any extra quantities plans might select to cost their enrollees. Premiums for Medicare Benefit plans don’t embrace funds for Medicare Half D advantages. Premiums for Medicaid don’t mirror contractual changes associated to danger corridors or different risk-sharing changes.
To calculate medical loss ratios, we divided the market-wide sum of complete incurred claims by the sum of all unadjusted well being premiums earned. Medical loss ratios on this evaluation are easy loss ratios and don’t regulate for high quality enchancment bills, taxes, or danger program funds. For instance, the 2016 CMS managed care ultimate rule (CMS-2390-F) permits managed care plans to regulate their medical loss ratio calculations to account for high quality enchancment expenditures and the removing of estimated Medicaid taxes, licensing, and regulatory payment from the revenues when submitting knowledge to CMS. It ought to be famous that different organizations and companies use claims and premiums reported within the “Assertion of Revenues & Bills” for his or her medical loss ratio calculations.
Appendix
Particular person Market. The person market, which accounted for about 17 million folks within the first quarter of 2022, consists of protection bought by people and households by the Inexpensive Care Act’s exchanges (Marketplaces) in addition to protection bought straight off-exchange, which incorporates each plans complying with the ACA’s guidelines and non-compliant protection. (e.g., grandfathered insurance policies bought earlier than the ACA went into impact and a few short-term plans). The federal authorities gives subsidies for low-income folks within the Market and consists of measures, reminiscent of danger adjustment, to assist restrict the monetary legal responsibility of insurers. Insurers within the particular person market obtain premium funds from enrollees, plus any federal subsidies for folks within the Marketplaces.
Some plans submitting knowledge on the Exhibit of Premiums Enrollment and Utilization look like together with some Youngsters’s Well being Insurance coverage Program (CHIP) knowledge of their Particular person market filings. In a earlier model of this evaluation, we used the Supplemental Well being Care Exhibit to handle this. Nevertheless, on this evaluation, we opted to make use of the EPEU to make sure comparability.
Group Market. The totally insured group market serves employers, their staff and dependents who’re enrolled in totally insured well being plans. This market consists of each small and huge group plans, however excludes employer-sponsored insurance coverage which can be self-funded, which account for 65% of staff with employer-sponsored insurance coverage. Roughly 30 million folks had been enrolled in totally insured group market plans in 2021. Plans usually obtain premium funds from each employers and their staff.
Medicaid Managed Care. The Medicaid Managed Care market consists of managed care organizations (MCOs) that contract with state Medicaid applications to ship complete acute care (i.e., most doctor and hospital providers) to enrollees. As of July 2020, greater than two-thirds (round 57 million folks) of all Medicaid beneficiaries nationally obtain most or all of their care from complete risk-based MCOs. There may be vital variation throughout states with respect to providers which can be coated by MCOs.
On this evaluation, the NAIC knowledge we use defines “Medicaid” as “enterprise the place the reporting entity costs a premium and agrees to cowl the complete medical prices of Medicaid subscribers” and solely explicitly excludes Administrative Providers Solely (ASO) plans from their reporting. Whereas we solely use “medically” targeted plans to assist exclude any specialty plans, PAHPs, PIHPs and PACE plans is probably not excluded attributable to NAIC’s definition of Medicaid. Moreover, for Medicaid, there are 4 states (Arizona, California, New York, and Oregon) which have totally different reporting practices and subsequently constantly solely have partial NAIC knowledge obtainable. In different work, KFF defines complete MCOs as managed care plans that present complete Medicaid acute care providers and, in some circumstances, long-term providers and helps as properly. This excludes “restricted profit plans” together with pay as you go ambulatory well being plans (PAHPs) and pay as you go inpatient well being plans (PIHPs) in addition to Applications of All-Inclusive Take care of the Aged (PACE) which may be included on this evaluation.
Mark Farrah Associates Well being Protection PortalTM consists of knowledge from totally capitated risk-based MCOs in addition to non-comprehensive Main Care Case Administration (PCCM) plans and a few specialty plans. PCCM plans have decrease capitated funds than complete MCO agreements as a result of a major care doctor is paid a smaller flat payment for case administration and care coordination duties, however the the rest of providers an enrollee receives are delivered on a Price-For-Service settlement.
Medicare Benefit. The Medicare Benefit market gives Medicare-covered advantages by personal plans to greater than 26 million Medicare beneficiaries in 2021, with enrollment projected to extend to just about half of all Medicare beneficiaries in 2023. The federal authorities makes risk-adjusted funds (larger funds for sicker enrollees and decrease funds for more healthy enrollees) to plans (averaging practically $12,600 per enrollee in 2021) to cowl the value of advantages coated underneath Medicare Elements A and B and supplemental advantages, reminiscent of dental, imaginative and prescient, listening to, and others, with extra funds for prices related to prescription drug protection. Some plans cost enrollees a further premium.
