Best’s Market Segment Report: U.S. Health Insurers Prepare for Shift Driven by End of Government Mandates

OLDWICK, N.J.--(BUSINESS WIRE)--
The U.S. health insurance segment saw favorable earnings driven by government programs, Medicaid managed care and Medicare Advantage, which has offset the lower income from the commercial segment, according to a new AM Best report.

The annual Review & Preview Best’s Market Segment Report, titled, “Health Insurers Prepare for Shift Driven by End of Government Mandates,” states that general medical utilization is likely close to, if not at, pre-pandemic levels, and the number of COVID-19 cases and tests, while moderated, was still significant, all of which helped to mute earnings in comparison with record results during the pandemic surge. Through third-quarter 2022, the U.S. health insurance segment posted net income of $22.4 billion, compared with $39.0 billion and $29.9 billion for the same nine-month periods of 2020 and 2021, respectively. Additionally, inflation is now causing increases in medical claims cost and administrative expenses, a trend that is likely to continue in 2023. Overall underwriting remains favorable, at $28.6 billion through third-quarter 2022, but a material drop in net investment income caused the lower year-over-year net income result.

At the same time, according to the report, the underwriting performance of the commercial segment (i.e., individual and employer groups) has deteriorated, with the segment reporting an aggregate underwriting loss of $700 million in 2021. Fully insured group enrollment continues to decline due to the transition to self-funded products and market saturation, limiting growth opportunities. However, the end of the public health emergency period in May 2023 will allow health insurance companies to implement co-pays and out-of-pocket costs for COVID testing, which could improve underwriting results.

“With the commercial segment’s results being pressured, underwriting results for Medicaid and Medicare Advantage are driving overall earnings for the health segment,” said Sally Rosen, senior director, AM Best. “However, a restart of the Medicaid redetermination process may temper the segment’s enrollment and earnings starting in late 2023. Medicare Advantage earnings also could decline as utilization further normalizes.”

Other highlights in the report include:

• Medicaid underwriting gains increased by 34.7% in 2021, to $9.7 billion, an unprecedented level of profitability, attributable to the ongoing growth in enrollment during 2021. Underwriting gains in Medicare Advantage accounted for 32% of total industry underwriting earnings in 2021; however, the segment’s underwriting results were sharply lower than those of the previous two years due mainly to higher claims experience.
• Smaller carriers continued to see earnings decline in 2021-2022 with the poor performance of commercial business. For companies with capital and surplus in the $10-$100 million range, more than 50% posted a loss in 2021; underwriting income among this population deteriorated by 37.5% in the first nine months of 2022.
• Sales of dental and vision insurance products to employer groups and individuals continued to gradually revert to pre-pandemic levels in 2022. However, inflation is eroding the buying power for individuals and may negatively impact the volume of worksite sales for which employees pay the premiums.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=329214.

For a video discussion about this report with Rosen and Doniella Pliss, director, AM Best, please visit http://www.ambest.com/v.asp?v=ambrphealth223.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Doniella Pliss
Director

+1 908 439 2200, ext. 5024

[email protected]

Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Sally Rosen
Senior Director

+1 908 439 2200, ext. 5280

[email protected]

Al Slavin
Senior Public Relations Specialist

+1 908 439 2200, ext. 5098

[email protected]

Source: AM Best