Health Insurers Are Doing Just Fine

It may sometimes be overlooked in all the headlines about high health spending, high drug prices, high premiums on the health insurance exchanges, but health plans are making very high profits, as reflected in a Mark Farrah Associates report on first half 2018 results.   (MFA Report)   The report looks at year-over-year revenue and profitability trends for several lines of business.  The most troubled, as you might expect, is the individual policy market, which has seen continued turmoil with regulatory changes and entrance and withdrawal of insurers, who have struggled to find a good formula for success.  2018’s first half was definitely better, with total premiums in the second quarter down 1.6%, but medical expenses down 9.8%.  On a per member per month basis premiums were up 17.4% while medical expenses rose 7.6%.  With a loss ratio of only 70%, this should have been a profitable quarter.  I would anticipate that the announced expansion by several newer insurers into the individual market will result in lower premium growth next year but also more losses, leading to another cycle of withdrawals or high premium increases.

In the group market, for fully-insured plans on a pmpm basis, premiums were up 3.8% while medical costs rose only 2.7%, giving a slight boost to already strong operating margins.  Total premiums declined slightly or were flat, but this likely reflects a continuing shift in the employer-based market to self-funding.   Medicare Advantage has been a steady source of enrollment and revenue increases for health plans and that continued in 2018’s first half.  Premiums in the second quarter rose a slight 1.1% pmpm, while health costs actually decreased a tenth of a percent.  Total premiums rose by 10%.  This business line will likely be an ongoing source of revenue and profit growth for insurers.  Managed Medicaid also has shown substantial membership increases.  PMPM premiums rose 2.9%, while medical expenses grew only two-tenths of a percent, causing the MLR to decline to 88.6%.   Total premiums increased almost 4%.  Medicaid is not highly profitable, but it is profitable and there are several health plans heavily focussed on this segment.  Overall health plans appear to be doing very well, which is consistent with financial reporting from those that are publicly held.