Gross margins for group market plans were up 16% and for managed care plans nearly 50% in 2020 compared to the year before, as insurers reaped major financial rewards from the pandemic.
A new analysis released Monday from the Kaiser Family Foundation found that while margins are up, plans may have to pay more in consumer rebates in 2021 due to a requirement under the Affordable Care Act (ACA). The pandemic caused major drops in healthcare spending and use last year as hospitals shuttered elective procedures at the onset of the pandemic and patients delayed care and screenings.
“Though spending rebounded through the second half of the year, health spending was somewhat lower in 2020 than it had been in 2019, making last year the first time in recorded history that health spending has dropped in the U.S.” Kaiser said.
The analysis examined gross margins per member per month for individual, group, Medicare Advantage and Medicaid managed care plans from 2018 through 2020. The gross margins don’t necessarily translate into profitability, because they don’t factor in administrative expenses, Kaiser said.
“However, a sharp increase in margins from one year to the next, without a commensurate increase in administrative costs, could indicate that these health insurance markets have become more profitable during the pandemic,” the analysis said.
Gross margins for the group market plans were 16% higher than in 2019 and 4% higher for plans in the individual market.
Margins for MA plans were 24% higher in 2020.
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Gross margins per member per month for MA plans also are likely “higher than for other insurance markets because Medicare covers an older, sicker population with higher average costs,” Kaiser said.
Managed care plans saw the biggest increase in gross margins, up 45% in 2020 compared to the year before.
“However, compared to the other markets, margins in the Medicaid [managed care organization] market are lower because while rates must be actuarially sound, payment rates in Medicaid tend to be lower than other markets,” the analysis said.
States also play a role as they have different incentives for performance and to adjust risk.
Researchers also explored the medical loss ratios that insurers posted for 2020, which is the premium income devoted to claims. The ACA requires individual and commercial insurers to rebate consumers if loss ratios don’t reach a minimum level.
“Generally, lower medical loss ratios mean that insurers have more income remaining after paying medical costs to use for administrative costs or keep as profits,” the analysis said.
Group and individual market loss ratios declined by two percentage points from 2019 to 2020.
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“Loss ratios in the individual market were already 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,” Kaiser said.
Researchers noted that the financial data, which were gleaned from the National Association of Insurance Commissioners, shows insurers got more profitable during the pandemic. But it remains unclear what the pandemic’s effects on financial results in 2021 will be.
“Healthcare 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,” the analysis said. “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.”