KFF: This insurance market had the highest gross margins last year

A new analysis from KFF digs into insurers' financial performance across multiple markets and found the highest gross margins in the Medicare Advantage (MA) space.

At the end of 2023, gross margins per enrollee in MA were $1,982 on average compared to $1,048 in the individual market. Medicaid was the lowest at $753 in gross margin per enrollee, and group plans fell in the middle at $910. Gross margins are a notable indicator for financial performance, though they're not necessarily indicative of profitability as they do not account for administrative costs or tax liabilities.

Gross margins in MA were similar in 2023 to those recorded in the 2022 version of the analysis, according to KFF. In 2022, MA plans averaged $1,977 per enrollee. This is despite concerns from multiple major players in this space about a spike in utilization over the course of 2023.

"Across most markets, gross margins have been relatively stable in recent years, though they have declined somewhat from spikes that occurred in 2020 during the initial phase of the COVID-19 pandemic," the researchers wrote.

The analysis also noted that margins for group plans declined significantly between 2020 and 2021 but have been on the rebound.

Margins in the individual market, meanwhile, spiked in 2018 and 2019 as plans jacked up premiums in response to efforts to repeal the Affordable Care Act and to eliminate cost-sharing reduction payments to plans on the exchanges. Margins in 2023 were 31% lower than in 2018 and 10% lower than in 2019, according to the report.

The Medicaid space was roiled by the ongoing unwinding process, and that was likely felt in the gross margin results. Gross margins per enrollee decreased by 6% between 2022 and 2023, according to the report. Medicaid managed care plans had anticipated they would likely have a higher ratio of high-risk members.

The study also examined medical loss ratios, which it again noted are a marker of financial performance that's not necessarily a direct look at profitability. A lower MLR means a plan is keeping a higher share of income after paying out premiums, but the required threshold varies between sectors.

The individual market saw the lowest MLRs at 84% in 2023, but the figures were largely on par across the board. Average MLR in the group market was 86%, and it was 87% for Medicaid and MA.

MLRs have been fairly stable in MA over the past several years, though some plans saw MLRs spike alongside an increase in utilization.

"Each health insurance market has different administrative needs and costs, so similar MLRs do not imply that the markets are similar to each other in profitability," the researchers wrote.