Analysis of health insurer financial performance in 2021 finds Medicare Advantage (MA) plans had significantly higher gross margins.
MA plans reaped over twice as much value as other insurance markets by the end of 2021, according to a report by Kaiser Family Foundation.
As utilization of medical care rebounded following the early stages of the COIVD-19 pandemic, MA gross margins per enrollee returned to pre-pandemic levels while commercial markets fell behind, researchers found.
The analysis examined financial data reported by insurance companies to the National Association of Insurance Commissioners and compiled by Mark Farrah Associates to compare gross margins and medical loss ratios between MA, Medicaid managed care, individual, and fully insurance group markets through the end of 2021.
Gross margins per enrollee is the amount by which total premium income exceeds total claims costs per enrollee per year. Though it doesn't necessarily translate into profitability because it doesn't take into account administrative expenses or tax liabilities, the researchers said, it does give an indication of financial performance.
MA plans averaged gross margins of $1,730 per enrollee in 2021, significantly higher than those in the individual ($745), fully insured group ($689), and Medicaid managed care ($768) markets.
When utilization was low due to the pandemic in 2020, MA plans grossed $2,257 per enrollee, compared to $1,317 for individual, $958 for group, and $845 for Medicaid managed care.
Prior to the pandemic in 2019, MA plans averaged gross margins of $1,819 per enrollee, well ahead of individual ($1,167), group ($832), and Medicaid managed care ($586).
Researchers highlighted that because MA plans cover an older, sicker population, they have both higher average costs and higher premiums, which are mostly 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 analysis stated.
As more distance is created from the pandemic, researchers posit that healthcare utilization could continue to increase.
Utilization and costs for Medicaid managed care, meanwhile, will be impacted by the upcoming Medicaid eligibility redetermination, which could result in millions losing coverage.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Kaiser Family Foundation looked at financial data reported by insurance companies to analyze gross margins and medical loss ratios for Medicare Advantage (MA), Medicaid managed care, individual, and fully insurance group markets through the end of 2021.
MA plans averaged gross margins of $1,730 per enrollee in 2021, more than doubling those in the individual ($745), fully insured group ($689), and Medicaid managed care ($768) markets.
Higher average costs and higher premiums are associated with MA plans because they cover an older, sicker population, which contributes to the higher gross margins.