3 Top Healthcare Insurance Companies Under the Affordable Care Act

About This Study

Data were collected from two datasets maintained by the Centers for Medicare and Medicaid Services (CMS): the unified rate review template (URRT) and medical loss ratio (MLR) data.

The URRT includes two sections: a market experience section that develops planned rates from the insurers' own prior experience or from industry averages, and the product/plan section, which reports projected changes in premiums, expenses, and enrollment for the coming year. In 2016, we identified 543 insurers that did not have deactivated submissions. Insurers' 2014 rate filing provided projected information for 2014 and their 2016 filing provided actual information for 2014. We excluded health insurer plans with submission status that was "deactivated" or "terminated."

MLR data were collected from health insurers in 50 states and the District of Columbia, but not from the territories. Data for 2014 included claims "run-out" paid through March 2015, as well as payments for ACA cost-sharing reduction plans. These MLR data captured the effects of "the 3 Rs" (reinsurance, risk adjustment, and rate corridor payments), which we further adjusted for prorated reductions in actual rate corridor payments. The key financial accounts were remapped and recalculated by following the NAIC Supplemental Health Care Exhibit definition for net premiums, net incurred claims after reinsurance, and underwriting gain and losses. In addition, MLR data provided transitional reinsurance payments made to state insurers in 2014.

In assessing the impact of expanded and mandated coverage of the individual commercial market in 2014, we computed financial ratios (medical loss, administrative cost, and profit margin ratios) on 144 credible health insurers (i.e., those with more than 1,000 members) that reported financial data from the individual market between 2013 and 2014 and reported 2014 experience in their URRT 2016 rate filings from plans where at least 50 percent of the membership were in ACA-compliant coverage.

From the 2014 MLR data, we identified 15.1 million nongroup members from 1,412 insurers across the states, before any data adjustments for non-ACA-compliant plans. From 2016 URRT data, we identified 622 insurers, which we merged with the 2014 MLR data. We then eliminated deactivated/terminated plans and any plans where more than 50 percent of the membership were in non-ACA-compliant products. This resulted in 286 insurers, covering 8.1 members that had ACA-compliant plans in both 2014 and 2016. We further reduced the sample to 144 insurers, totaling 7.8 million members, by excluding those that did not report 2013 data and that had fewer than 1,000 members. Marketwide and quartile means are weighted by each plan's membership.

In calculating financial measures, we included insurers with any size enrollment and premiums to capture the experience of insurers that were less active and possibly exiting these markets. For financial measures, we had the following study sample:

• Individual market = 1,669 in 2012, 1,591 in 2013, and 1,412 in 2014
• Small-group market = 968 in 2012, 928 in 2013, and 879 in 2014
• Large-group market = 877 in 2012, 874 in 2013, and 856 in 2014.

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GLOSSARY

Premium: Net adjusted premium earned, including payments for risk adjustment and rate corridor payments.

Net medical claims: Incurred medical expenses net of reinsurance claims, adjusted for advance cost-sharing payment.

Medical loss ratio: Net medical claims plus total quality improvement costs, divided by premiums.

Quality improvement expenses: Activities in the following categories: improving health outcomes, preventing hospital readmissions, improving patient safety and reducing medical errors, increasing wellness and promotion, and implementing health information technology. Quality improvement expenses are included along with medical expenses in the numerator of the medical loss ratio for purposes of calculating rebates owed under the ACA.

Agent and broker expenses: Usually reported as part of administrative expenses. (In this brief we separate out this element.)

Other administrative costs: All administrative expenses other than agent and broker fees. Included are internal sales expenses, claims adjustment costs, and salary and benefit expenses, as well as all other general corporate overhead costs.

Administrative cost ratio: Other administrative costs plus agent and broker expenses, divided by premiums.

Underwriting gain or loss: Calculated by subtracting all medical, quality improvement, and administrative costs from net premium earned. As such, it does not include profit or loss from investments or taxes on investments.

Profit margin: Underwriting gain divided by premiums. A negative profit margin indicates that medical and administrative costs exceeded premiums.

Acknowledgments

We are grateful to Julie Andrews with Wakely Consulting Group, who provided very helpful actuarial advice, and Jennifer Pallazzolo, doctoral student at Virginia Commonwealth University, for her programming work.

Notes

¹ "American Health Insurers: Fit as Fiddles," Economist, Dec. 5, 2015; P. R. La Monica, "Thanks, Obamacare! Health Insurer Stocks Soar," CNN Money, Jan. 21, 2015.

² S. Sheingold, N. Nguyen, and A. Chappel, Competition and Choice in the Health Insurance Marketplaces, 2014–2015 (Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, July 2015); J. R. Gabel, H. Whitmore, M. Green et al., "In Second Year of Marketplaces, New Entrants, ACA 'Co-Ops,' and Medicaid Plans Restrain Average Premium Growth Rates," Health Affairs, Dec. 2015 34(12):2020–26.

³ J. R. Gabel, H. Whitmore, A. Call et al., "Modest Changes in 2016 Health Insurance Marketplace Premiums and Insurer Participation," To the Point, Jan. 28, 2016; J. R. Gabel, H. Whitmore, S. Stromberg et al., "Analysis Finds No Nationwide Increase in Health Insurance Marketplace Premiums," To the Point, Dec. 22, 2014.

⁴ Blue Cross Blue Shield Association, Newly Enrolled Members in the Individual Health Insurance Market After Health Care Reform: The Experience from 2014 and 2015 (Blue Cross Blue Shield Association, 2016).

⁵ C. Cox, G. Claxton, L. Levitt et al., Analysis of 2017 Premium Changes and Insurer Participation in the Affordable Care Act's Health Insurance Marketplaces (Kaiser Family Foundation, June 15, 2016).

⁶ S. Corlette, S. Miskell, J. Lerche et al., Why Are Many CO-OPs Failing? How New Nonprofit Health Plans Have Responded to Market Competition (The Commonwealth Fund, Dec. 2015).

⁷ J. Holahan, L. J. Blumberg, and E. Wengle, What Does the Failure of Some Co-ops and the Possible Pullout of United Healthcare Mean for the Affordable Care Act? (Urban Institute, Jan. 2016). Among the reasons for United Healthcare's failure to thrive in the exchange market are that it waited until the second year to enter most markets and it usually was not among the lowest-priced plans.

⁸ Further demonstrating this point, see P. R. Houchens, J. A. Clarkson, J. S. Herbold et al., 2014 Commercial Health Insurance: Overview of Financial Results (Milliman, March 2016); McKinsey Center for U.S. Health System Reform, Exchanges Three Years In: Market Variations and Factors Affecting Performance, 2016 (McKinsey & Co., May 2016). For an example of analysis that fails to take full account of the ACA's risk protection mechanisms in calculating medical loss ratios, see B. Blase, D. Badger, E. F. Haislmaier et al., Affordable Care Act Turmoil: Large Losses in the Individual Market Portend an Uncertain Future (Mercatus Center, June 2016). Although they report offsetting payments from reinsurance, risk adjustment, and risk corridors, they calculate medical loss ratios prior to adjusting for these payments.

⁹ J. Lerche and K. Ehresmann, Considerations for 2016 Health Insurance Rate Development, Rate Filing, and Rate Review (Wakely Consulting Group, March 2015).

¹⁰ Per-member-per-month values are weighted by enrollment within each quartile, for top and bottom quartiles, and across the entire sample for the overall mean.

¹¹ Reinsurance claim thresholds and payment percentages are subject to change, but in 2014 the program paid 100 percent of all claims between $45,000 and $250,000 per patient.

¹² For similar comparisons using somewhat different analyses, see P. R. Houchens, J. A. Clarkson, J. S. Herbold et al., 2014 Commercial Health Insurance: Overview of Financial Results (Milliman, March 2016); and McKinsey Center for U.S. Health System Reform, Exchanges Three Years In: Market Variations and Factors Affecting Performance, 2016 (McKinsey & Co., May 2016). In contrast, B. Blase, D. Badger, E. F. Haislmaier et al., Affordable Care Act Turmoil: Large Losses in the Individual Market Portend an Uncertain Future (Mercatus Center, June 2016) shows much worse financial performance, but their analysis differs by separating products sold through exchanges from the rest of the individual market, and by calculating medical loss ratios prior to taking into account payments from the ACA's three risk-mitigation programs (reinsurance, risk adjustment, and risk corridors).

¹³ R. Galvin, "How Employers Are Responding to the ACA," New England Journal of Medicine, Feb. 18, 2016 374(7):604–6.

¹⁴ The top quartile includes all insurers with per-member-per-month gain at or above $13.93, while the bottom quartile includes insurers with a loss equal to or greater than $37.72. The middle (median) group is all other insurers. Within each group, mean values are weighted by enrollment.

3 Top Healthcare Insurance Companies Under the Affordable Care Act

Source: https://www.commonwealthfund.org/publications/issue-briefs/2016/jul/how-has-affordable-care-act-affected-health-insurers-financial

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