COVID-19 has significantly impacted both the health & well-being of the population and the economies of the world. For U.S. health insurance companies, the repercussions of the virus became evident late in the first quarter, thus making the pandemic’s effect on financial and enrollment results most noticeable in second quarter. In this brief, Mark Farrah Associates (MFA) compared second quarter, year-over-year profitability for the Individual, Employer-Group, Medicare Advantage, and managed Medicaid health insurance segments. Financial insights were gleaned from aggregated 2Q19 and 2Q20 National Association of Insurance Commissioners (NAIC) statutory financial data from MFA’s Health Coverage Portal™.
Individual Segment
According to financial statements filed by insurers and estimates by Mark Farrah Associates, enrollment in individual medical plans totaled approximately 15.3 million as of June 2020, as compared to 14.8 million a year ago. Historically speaking, enrollment in the segment peaks during first quarter, and declines in subsequent quarters. 2020 marks the first time since 2014 where enrollment in the second quarter was larger than the first. This growth may be fueled in part due to Americans who have lost insurance coverage from their employers due to lay-offs and business closures, and turning to the individual market to maintain their coverage. Furthermore, enrollment as of 2Q20 was larger than 2Q19; a YOY growth that has not been seen since 2015. After experiencing three consecutive years of overall profitability, as measured by the cumulative underwriting gain for the segment, industry stakeholders are watching closely to see how COVID-19 will impact the segment.
For second quarter 2020, premiums earned decreased 1.9% while health care services incurred (medical expenses) incurred dropped 2.4% from second quarter 2019. On a PMPM basis, which accounts for changes in membership and reporting plans, premiums decreased 2.4%, slightly less than the 2.9% decrease in medical expenses. Through the first two quarters of 2020, the average medical expense ratio for the individual segment was 73.6%, as compared to 73.9% the previous year. Anthem was the only segment leader with results leading to a higher medical expense ratio at the end of 2Q20 vs 2Q19.
After many years of increasing medical expenses, the overall decline in spending reported at the end of June is significant. Health care expenses (medical expense) was up 4.2% on a PMPM basis as of March 31, 2020. However, the impact of COVID-19 was felt during the second quarter, as medical expense dropped 9.4% when compared to 2Q19, as individual members chose to postpone elective medical care.
Employer-Group Segment
Health insurance companies in the Employer-Group risk segment reported 49.8 million members as of June 30, 2020, down 2.3% from June 30, 2019. This decline is larger than the 1.7% seen between 2Q19 and 2Q18, possibly due in part to the economic conditions from the pandemic. For health insurers, profitability has improved in 2020. For second quarter 2020, premiums earned decreased 2.0% and medical expenses dropped 6.7% from second quarter 2019. On a PMPM basis, premiums earned have increased 1.2% over 2Q19, while medical expenses decreased by 3.7%. The growth in premiums and decline in medical expenses pushed the average medical expense ratio for this segment down to 77.6% for 2Q20 from 81.4% in 2Q19.
Source: Mark Farrah