MA plans post higher gross margins than individual, group markets: KFF

Medicare Advantage
Medicare Advantage plans have a higher gross margin than individual and group market plans, a new analysis finds. (Getty/designer491)

Average gross margins for Medicare Advantage plans were double those of plans in the individual and commercial group markets, with MA plans buoyed by bonus payments, according to a new analysis.

The analysis released Monday from the nonprofit Kaiser Family Foundation comes as 22 million Medicare beneficiaries, more than one-third of the total enrollment, have an MA plan. Insurers have been steadily flocking to MA plans, and the Congressional Budget Office projects enrollment in MA will rise by 47% by 2029.

Kaiser found that the average gross margin, which is the difference between total premiums collected and claims costs across three years, was $1,608 per beneficiary per year from 2016 to 2018 for MA plans. This is double the number for individual plans at $779 and group market plans at $855 per member. Group plans refer to small and large employer health plans.

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“Gross margins do not necessarily translate into profitability since they do not account for administrative expenses,” Kaiser’s analysis said. “Nonetheless, gross margins are an indicator of financial performance and signal how much insurers retain, including profits, after paying for enrollees’ covered medical expenses.”

RELATED: As Medicare population booms, MA plans eye growth opportunities, study finds

Kaiser also found that every year since 2006, the average gross margin for Medicare Advantage has exceeded that of the individual and group markets. Growth in margins for MA comes even though the Affordable Care Act cut payments to MA plans.

Kaiser pegs the increase in average gross margins for MA plans due to “a sharp increase in the size and number of plans receiving bonus payments for high quality ratings, with total bonus payments more than doubling between 2015 and 2018.”

A separate Kaiser analysis found that 72% of all MA enrollees this year are in plans with a quality rating of four or more stars, the threshold to qualify for bonus payments from the federal government.

Kaiser also previously found that the federal government may be overpaying MA plans, as current payment rates are based on traditional Medicare rates. MA plans pay out a larger percentage of claims compared to individual and group markets.

RELATED: MA could fix problems 'Medicare for All' is trying to solve, says Humana CEO Broussard

The MA market had a simple loss ratio, which is the percentage of premium income paid out in claims, of 86%. This was slightly above individual and group market plans, which both had a ratio of 84%. But simple loss ratios also don’t account for administrative expenses.

While MA plans have experienced steady growth in recent years, individual market insurers have undergone substantial volatility. Individual market margins have been affected by “underpricing in the early years of ACA implementation and more recent overcorrections amid uncertainty about ACA repeal, enforcement of the individual mandate and in response to the Trump administration’s decision to cease cost-sharing subsidy payments and reduce funding outreach,” Kaiser’s analysis said.

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