The Small Group Insurance Market

The small group commercial insurance market, comprising those employers with 5 to 49 employees, has been a small but important segment of the private health plan world, covering about 17 million Americans through 1,450,000 small groups in 2013.  This segment has historically been volatile but potentially very profitable if well underwritten and priced.  While small groups are exempted from some health reform law requirements, the dramatic changes to the health care coverage world have affected this segment as well.  A Mark Farrah report gives some insight into the current status of the small group market.   (Mark Farrah Assoc. Report)   There are a total of about 1.9 small businesses of this employee size, so about 75% offer health plans.  This number has declined by about 5% to 7% from 2012.  Of interest to reform watchers is whether small firms are beginning to end health care coverage and send employees to the public exchanges instead.  Around 300 health plan companies compete in the small group market, with some national payers owning multiple plans.  The top five small group insurers, by number of covered lives (employee plus dependents), are UnitedHealth Group, WellPoint, Aetna, Health Care Service Corporation and Humana.  They cover 8 million people, or about 49% of the total small group market.  UnitedHealth, WellPoint and HCSC were the most profitable with 71% of total profits, although they had only 33% of total covered lives.  UnitedHealth made about $831 million in underwriting gain, for a 7% profit margin; while WellPoint had $505 million in underwriting profit, also a 7% margin.  These companies had a medical claims ratio of around 82%, above the minimum MLR ratio of 80% required by the health reform law.   The small employer health insurance exchange was delayed by the Administration, but when it comes into being, it may help small firms encourage competition for their business and pay less in premiums, as well as receive tax credits.