Insurers seeing highest margins in Medicare Advantage: KFF study

Payers' margins in Medicare Advantage returned to pre-pandemic levels in 2021 but remain far ahead of other sectors of the market, according to a new analysis.

Commercial markets, meanwhile, have lagged behind, the Kaiser Family Foundation report found. Researchers at KFF studied data from the National Association of Insurance Commissioners compiled by Mark Farrah Associates.

Gross margins per member in Medicare Advantage were $1,727 in 2019 and rose to $2,257 by 2020. That figure settled back at $1,730 in 2021, according to the report. Gross margins aren't necessarily directly analogous to profitability, as administrative costs or tax liabilities are not accounted for, but they can be indicative of profitability changes, the researchers said.

However, that's still far ahead of any other types of coverage included in the study. In 2021, gross margins per member were $745 in the individual market, $689 for group plans and $768 in Medicaid managed care.

The researchers said this is likely due to the fact that Medicare Advantage plans have both higher costs and higher premiums, due to an older, sicker member pool, that are largely paid by the federal government.

"So, while Medicare Advantage insurers spend a similar share of their premiums on benefits as other insurers in other markets, the gross margins—which include profits and administrative costs—of Medicare Advantage plans tend to be higher," the researchers wrote.

Gross margins per member in the individual market were $1,515 in 2019, which declined to $1,317 in 2020. The margin fell further to $745 in 2021, the study found. For group plans, margins grew slightly from $912 to $958 between 2018 and 2020, before falling to $689 in 2021.

Margins grew slightly in the Medicaid managed care market, from $626 in 2018 to $845 in 2020 to $768 in 2021.

While COVID-19 clearly has impacted payers' finances—though not to the same level as providers—the ongoing effects are much harder to predict, the researchers said. For example, commercial payers will have to begin picking up the tab for vaccines and therapies, but uptake is hard to estimate, they said.

"Health care utilization has mostly rebounded to pre-pandemic levels, though there are indications utilization remains suppressed for non-COVID care and there could be additional pent-up demand for care that had been missed or delayed," the researchers wrote.