Despite pockets of enrollment activity, profitability suffers among top insurers

Although several of the country’s largest health insurance companies saw membership increase over the last year, volatile financial markets, merger costs and exchange losses have all played a role in declining profit margins.

Cigna, Kaiser, UnitedHealth, and Anthem all experienced membership growth of at least 2.9 percent between the first quarter of 2015 and the first quarter of 2016, according to a report released by Mark Farrah Associates, a financial analyst firm for the healthcare industry. UnitedHealth recorded the largest enrollment gains, adding 1.73 million new members thanks to significant gains in risk-based plans.

On the other hand, Aetna, Humana and Health Care Service Corporation (HCSC) suffered enrollment losses over the past year. Humana dropped more than 400,000 tied to individual plans and several large administrative services only (ASO) accounts. HCSC lost nearly 507,000 after it pulled out of the New Mexico Affordable Care Act (ACA) exchange and discontinued plans in Illinois and Texas.

Even those insurers with membership gains experienced lower profit margins, echoing findings from a report released last quarter. All four of the companies reviewed by Mark Farrah posted lower profits in 2016, although some losses had little to do with enrollment activity. For example, Kaiser Permanente saw a 52 percent decline in net income despite higher revenue and lower operating margins, which the company attributed to “volatility in financial markets and investment losses.” Both Aetna and UnitedHealth blamed state exchanges for lower profit margins, and Anthem attributed its decline to costs associated with its acquisition of Cigna.

Health insurers have struggled to turn a profit within the ACA exchanges, prompting Aetna, UnitedHealth, and Humana to announce plans to scale back exchange offerings.