Health Payer Segments to Stay Profitable, Face Tighter Margins

Commercial Segment

The individual health insurance market is in the process of a gradual decline. As a result, the market is more profitable than in prior years, leading payers to take more risks and accept more members with chronic diseases.

The elimination of the individual mandate was expected to make a significant change in the individual health insurance market but came nowhere near the anticipated effects.

The increased utilization was also unexpected. It was key to keeping the market profitable for 2019.

Medical loss ratios led to the highest amount of underwriting of the decade in 2019.

The average subsidized premium on the individual health insurance market was $87, which is $2 less than in 2018. Nearly nine in ten individuals on the individual health insurance market received a premium subsidy.

Employer sponsored health plans have always been profitable and even offset the individual health insurance market’s underwriting losses from 2014 to 2016. And these plans have been experiencing higher enrollment with the strong economy.

However, now employers are shifting from fully insured to administrative service only contracts or self-funded insurance plans, which may be exempt from state and ACA-mandated benefits.

As a result, profitability is declining because administrative service only contracts have lower margins.

In 2020, The individual health insurance market will remain profitable, but potentially not as profitable as 2019. 

Rates for the individual health insurance market are not expected to rise drastically, largely hovering around the single digits and possibly even decreasing. 

Payers will pass rebates on to members due to the individual health insurance market’s 80 percent medical loss ratio.

For the employer sponsored health plans and the group health insurance market, the transition from fully-insured to self-insured and administrative service only will persist in 2020.

Level-funded products may prove to be a steppingstone from fully-insured to administrative only contracts, since they require consistent monthly payments instead of unpredictable costs.

Medicaid Segment

Around 71.4 million people were enrolled in Medicaid as of October 2019.

Medicaid enrollment, on the whole, has been in decline since 2017 and is considered largely responsible for the increased rates that boosted premium growth. Annual net premiums written rose by almost two percent.

Value-based care is taking hold in Medicaid. Three-quarters of all states favor managed care models over fee-for-service due to better healthcare spending control. Many of these states have requirements that enforce a value-based care style of program design.

Legislatively, CMS approved 53 Section 1115 waivers in 2019, 62 percent of which involved behavioral healthcare, and 23 more are still pending. Block grants also received approval—in the face of heated opposition—as well as the Healthy Adult Opportunity, which is a block grant for a specific segment of society. Tennessee was the first state to apply for a block grant.

In 2020, there is no telling exactly how the response to block grants will play out. It would seem as though states approved for a block grant would want to work with payers in order to manage beneficiaries’ care. However, this could spell disaster for payers if the state’s healthcare spending exceeds its block grant budget, eliminating payers’ authority to negotiate rates.

States may also be reconsidering their eligibility requirements, due to fluctuations in enrollment.

Medicaid is expected to remain profitable in the new year, despite down enrollment and the uncertain consequences of block grants.

Senior Segment

In 2018, Medicare Advantage premiums jumped 11 percent to total $226 billion and Medicare supplement premiums also rose. 

Payers are driven to the Medicare Advantage market due to strong premiums and membership population growth.

There is still plenty of room for payers to continue seeing gains in enrollment, as only a third of Medicare-eligible individuals are in a Medicare Advantage plan and typically only 8 percent turn over.

In 2020, Medicare beneficiaries on average had 28 plans to choose from, which is an increase from last year.

It is not a simple task to make a profit in Medicare Advantage, however. Medicare Advantage star ratings and the annual bidding process, not to mention the barriers to entry, can prevent Medicare Advantage plans from being successful if they fail to be fully engaged with every requirement.

These products have margins of only one to three percent.

Seeing how regulations impacted the 2019 Medicaid landscape with ripple effects already extending into 2020, payers will want to be watching for upcoming regulations--such as the looming prescription drug pricing, surprise billing rules, and the third attempt at repealing the ACA--and in the commercial segment, creating products for self-insured employers may remain key to staying relevant for that consumer base.