People in the U.S. continued to defer care in the third quarter, a fact that helped insurers to major profits even compared to the same time last year, which saw abnormally low utilization amid COVID-19.
All major health insurers saw notable year-over-year revenue growth in the third quarter. However, medical loss ratios, the percentage of premiums insurers pay out toward medical costs, varied across the board, dinging the margins of some.
Some payers reported near-record COVID-19 hospitalizations and pandemic-related medical claims among their members during the quarter, while for others, COVID-19 costs were almost or entirely offset by delayed care.
Those headwinds dinged the profitability of commercial businesses across the board especially hard, as compared to government products like Medicare and Medicaid.
UnitedHealth, Cigna, CVS Health (which owns Aetna), Humana, Anthem, Centene and Molina reported third-quarter MLRs of 83%, 84.4%, 85.8%, 87.1%, 87.7%, 88.1% and 88.9%, respectively.
UnitedHealth and Anthem said their MLRs were lower than expected, as higher pandemic-related costs due to the surging delta variant in the quarter were offset by people delaying non-COVID-19 care.
Members of CVS, Cigna and Molina plans used more healthcare services than expected in the quarter. Costs for COVID-19 testing and treatment especially surpassed management forecasts.
"The MLR increase is entirely driven by COVID, fairly consistently over the last couple of quarters," CVS CFO Shawn Guertin told investors.
Molina and Centene's high MLRs were partially due to their large share of patients in Medicare and Medicaid, which are disproportionately likely to be hard-hit by the virus. Both government-heavy payers saw their bottom lines especially pressured in the quarter.
Despite revenue up 40% year over year to $7 billion, Molina's net income fell 23% to $143 million in the quarter. Similarly, despite revenue up 11% to $32.4 billion, Centene's net income was up just 3% to $584 million.
By comparison, Humana, Cigna, UnitedHealth and CVS reported profit up 14%, 17%, 29% and 30%, respectively.
UnitedHealth, which owns the nation's largest payer, reported net income of $4.2 billion, trailed by CVS and Cigna with about $1.6 billion, and Humana and Anthem both with $1.5 billion.
That represents a whopping 576% year-over-year profit growth for Anthem.
The special enrollment period contributed to higher medical claims among marketplace members in the quarter, some payers said.
Both Cigna and Molina reported higher non-COVID-19 utilization among members who joined during the SEP, which was set up by the Biden administration in a bid to ensure coverage continuity as the pandemic drove widespread job losses, putting millions of workers at risk of losing job-based insurance.
However, insurers said they expected the medical costs associated with SEP members to moderate next year. And the individual exchanges continue to be a key area of investment for payers as consumers enroll in exchange plans, enticed by low- and no-cost copay options and more generous subsidies under COVID-19 relief legislation.
Cigna, for example, plans to enter three new states and 93 counties next year, while CVS plans to enter eight new states.
Many payers raised their full-year revenue and earnings outlooks following the generally positive quarter, though some offered a note of caution about the continued return of pent-up utilization. And the fourth quarter normally has a higher benefits ratio, even without the effects of COVID-19, management said.
Humana, for one, projected utilization would be higher than originally anticipated for the remainder of the year, and cut its earnings expectations as a result.
"Estimating the impact of COVID has proven to be more challenging, particularly given the environment that we were in in 2020 is quite different than what we're experiencing, obviously, in 2021," Humana CFO Susan Diamond told investors on its earnings call.
Despite the ongoing uncertainty, one clear takeaway from the third quarter is that payers remain notably more profitable today than they were pre-pandemic.