The coronavirus pandemic, social distancing, and resulting economic downturn have had considerable implications for the U.S. health system, including health insurers. The pandemic caused a sizable decrease in the use of health care services during the first half of 2020, job losses appear to have led to coverage loss in the employer market and increases in Medicaid enrollment, and insurers projecting costs for next year must assess the relative effects of pent-up demand for delayed care, the continuing pandemic, and a potential vaccine.
In this brief, we analyze data from 2013 to 2020 to examine how insurance markets performed through the first half of this year as the pandemic developed and worsened in the U.S. We use financial data reported by insurance companies to the National Association of Insurance Commissioners and compiled by Mark Farrah Associates to look at average medical loss ratios and gross margins in the individual (also known as non-group), fully-insured group (employer), and Medicare Advantage health insurance markets. A more detailed description of each market is included in the Appendix.
We find that, as of the end of June 2020, average margins have increased and loss ratios have dropped across the fully-insured group and Medicare Advantage markets, relative to the same time period in 2019. If administrative costs were roughly the same in 2020 as in 2019, these findings suggest higher profits for many insurers during the pandemic. Individual market loss ratios were already quite low and remained flat into 2020, suggesting continued profitability. The results for the individual and group markets indicate that commercial insurers are on track to owe substantial rebates to consumers again next year under the Affordable Care Act (ACA) Medical Loss Ratio provision.
One way to assess insurer financial performance is to examine average gross margins per member per month, or the average amount by which premium income exceeds claims costs per enrollee in a given month. Gross margins are an indicator of performance, but positive margins do not necessarily translate into profitability since they do not account for administrative expenses. However, a sharp increase in margins from one year to the next, without a commensurate increase in administrative costs, would indicate that these health insurance markets have become more profitable during the pandemic.
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Despite many insurers covering the full cost of coronavirus testing and treatment for their enrollees, insurers across most markets have seen their claims costs fall, and margins increase since the start of the pandemic, and relative to 2019. This is consistent with the sharp drop in utilization documented in other analyses.
Gross margins among group market plans increased 22% (or $20 pmpm) through the second quarter of 2020 relative to the same period in 2019. Gross margins among Medicare Advantage plans also increased, rising 41% (or $64 pmpm) through the first six months of 2020 compared to gross margins at the same point last year. (Gross margins per member per month tend to be higher for Medicare Advantage than for the other health insurance markets mainly because Medicare covers an older, sicker population with higher average costs). Prior to the pandemic, margins in the group and Medicare Advantage markets had grown gradually over recent years.