Reduced Spending, Utilization Drove Health Insurers’ 2020 Profits

Health‌ ‌insurers‌ ‌remained‌ ‌profitable‌ ‌across‌ ‌markets‌ ‌in‌ ‌2020‌ ‌because‌ ‌of‌ ‌an‌ ‌unprecedented‌ ‌decrease‌ ‌in‌ ‌health‌ ‌spending‌ ‌and‌ ‌utilization‌ ‌caused‌ ‌by‌ ‌the‌ ‌pandemic.‌ ‌

Hospitals,‌ ‌physicians‌ ‌and‌ ‌other‌ ‌health care‌ ‌providers‌ ‌canceled‌ ‌elective‌ ‌procedures‌ ‌to‌ ‌free‌ ‌up‌ ‌beds,‌ ‌staff‌ ‌and‌ ‌supplies‌ ‌early‌ ‌in‌ ‌the‌ ‌pandemic‌ ‌and‌ ‌to‌ ‌limit‌ ‌unnecessary‌ ‌exposure‌ ‌and‌ ‌risk‌ ‌of‌ ‌infection.‌ ‌Patients‌ ‌also‌ ‌opted‌ ‌to‌ ‌forgo‌ ‌non-urgent‌ ‌care‌ ‌to‌ ‌limit‌ ‌risks‌ ‌and‌ ‌exposure‌ ‌to‌ ‌the‌ ‌virus.‌ ‌Although‌ ‌spending‌ ‌rebounded‌ ‌through‌ ‌the‌ ‌second‌ ‌half‌ ‌of‌ ‌the‌ ‌year,‌ ‌it‌ ‌was‌ ‌somewhat‌ ‌lower‌ ‌in‌  2020‌ ‌than‌ ‌it‌ ‌had‌ ‌been‌ ‌in‌ ‌2019,‌ ‌making‌ ‌last‌ ‌year‌ ‌the‌ ‌first‌ ‌time‌ ‌in ‌recorded‌ ‌history‌ that‌ ‌health‌ ‌spending‌ ‌dropped‌ ‌in‌ ‌the‌ ‌United‌ ‌States.‌ ‌

KFF‌ ‌analyzed‌ ‌recent‌ ‌financial‌ ‌data‌ ‌regarding‌ ‌medical‌ ‌loss‌ ‌ratios‌ ‌and‌ ‌gross‌ ‌margins‌ ‌in‌ ‌the‌ ‌Medicare‌ ‌Advantage,‌ ‌Medicaid‌ ‌managed‌ ‌care,‌ ‌individual‌ ‌and‌ ‌fully‌ ‌insured‌ ‌group‌ ‌health ‌ insurance‌ ‌markets‌ ‌through‌ ‌the‌ ‌end‌ ‌of‌ ‌2020.‌ ‌

Gross‌ ‌margins

‌‌Gross‌ ‌margins‌ ‌among‌ ‌individual‌ ‌market‌ ‌and‌ ‌fully‌ ‌insured‌ ‌group‌ ‌market‌ ‌plans‌ ‌were‌ ‌4% ‌and‌ ‌16‌% higher,‌ ‌respectively,‌ ‌than‌ ‌they‌ ‌were‌ ‌in‌ ‌2019.‌ ‌However,‌ ‌gross‌ ‌margins‌ ‌among‌ ‌fully‌ ‌insured‌ ‌group‌ ‌market‌ ‌plans‌ ‌remained‌ ‌relatively‌ ‌flat‌ ‌in‌ ‌2020‌ ‌when‌ ‌compared‌ ‌to‌ ‌2018,‌ ‌and‌ ‌gross  ‌margins‌ ‌among‌ ‌individual‌ ‌market‌ ‌plans‌ ‌decreased‌ ‌by‌ ‌14% ‌‌in‌ ‌2020‌ ‌when‌ ‌compared‌ ‌to‌ ‌2018,‌ ‌a‌ ‌year‌ ‌in‌ ‌which‌ ‌individual‌ ‌market‌ ‌insurers‌ ‌overcorrected‌ ‌when‌ setting‌ ‌premiums‌ ‌following‌ ‌the‌  loss‌ ‌of‌ ‌cost-sharing‌ ‌subsidy‌ ‌payments.‌ ‌ ‌

Annual‌ ‌gross‌ ‌margins‌ ‌among‌ ‌Medicare‌ ‌Advantage‌ ‌plans‌ ‌were‌ ‌24‌% ‌‌higher‌ ‌in‌ ‌2020‌ ‌compared‌ ‌to‌ ‌2019‌ ‌and‌ ‌31% higher‌ ‌when‌ ‌compared‌ ‌to‌ ‌2018.‌ ‌(Gross‌ ‌margins‌ ‌per‌ ‌member‌ per‌ ‌month‌ ‌for‌ ‌Medicare‌ ‌Advantage‌ ‌plans‌ ‌tend‌ ‌to‌ ‌be‌ ‌higher‌ ‌than‌ ‌for‌ ‌other‌ ‌health‌ ‌insurance‌ ‌markets‌ ‌mainly‌ ‌because‌ ‌Medicare‌ ‌covers‌ ‌an‌ ‌older,‌ ‌sicker‌ ‌population‌ ‌with‌ ‌higher‌ ‌average‌ ‌costs.)‌ ‌

Medical‌ ‌loss‌ ‌ratios

‌Fully‌ ‌insured‌ ‌group‌ ‌market medical‌ ‌loss‌ ‌ratios‌ ‌decreased‌ ‌by‌ 2% from 2019‌ ‌to‌ ‌2020‌ ‌and‌ ‌are‌ ‌comparable‌ ‌to‌ ‌2018‌ ‌values.‌ ‌Individual‌ ‌market‌ ‌loss‌ ‌ratios‌ ‌also‌ ‌decreased‌ two‌ ‌percentage‌ ‌points‌ ‌in‌ ‌2020‌ ‌compared‌ ‌to‌ ‌the‌ ‌previous‌ ‌year‌ ‌but‌ ‌increased‌ ‌by‌ ‌four‌ ‌percentage‌ points‌ ‌compared‌ ‌to‌ ‌2018.‌ ‌

Loss‌ ‌ratios‌ ‌in‌ ‌the‌ ‌individual‌ ‌market‌ ‌already‌ ‌were‌ ‌quite‌ ‌low‌ ‌before‌ ‌the‌ pandemic,‌ ‌and‌ ‌insurers‌ ‌in‌ ‌the‌ ‌market‌ ‌are‌ ‌expecting‌ ‌to‌ ‌issue‌ ‌more‌ ‌than ‌$2‌ ‌billion‌ in‌ ‌rebates‌ ‌to‌ ‌consumers‌ ‌this‌ ‌fall‌ ‌based‌ ‌on‌ ‌their‌ ‌experience‌ ‌in‌ ‌2018,‌ ‌2019‌ ‌and‌ ‌2020.‌ ‌Insurers‌ ‌in‌ ‌the‌ ‌individual‌ market‌ ‌have‌ ‌been‌ ‌profitable‌ ‌for‌ ‌several‌ ‌consecutive‌ ‌years‌ ‌as‌ ‌the‌ ‌market‌ ‌has‌ stabilized. Average premiums have decreased for three years in a row, while insurer participation on the ACA exchanges has increased in many areas of the country

“Using annual financial data reported by insurance companies to the NAIC, it appears that health insurers in most markets became more profitable during the pandemic, though we can’t measure profits directly without administrative cost data,” according to analysts. “Across the markets we examined, gross margins were higher and medical loss ratios were lower in 2020 than in 2019. Loss ratios in the Medicaid MCO market were lower in 2020 than 2019 and 2018; however, gross margins in the Medicaid MCO market are low relative to the other markets, and data do not reflect implementation of existing or newly imposed risk-sharing mechanisms.”

The pandemic’s effect on health spending and insurer financial performance in 2021 remains uncertain.

“Health care utilization has mostly rebounded to pre-pandemic levels, and there could be additional pent-up demand for care that had been missed or delayed last year,” analysts concluded. “Additionally, while the cost of vaccine doses has largely been borne by the federal government, the cost of administering shots will often be covered by private insurers.”


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