- The Medicare Advantage, individual and group markets all pack healthy profit margins for insurers, according to a Kaiser Family Foundation report released this week.
- Average gross margins — the average amount by which premium income exceeds yearly claims costs for each covered person — are considered a critical benchmark for insurer financial performance. Of the three private health insurance markets, the Medicare Advantage market had the highest gross margins, with an average of $1,608 per enrollee per year.
- The average gross margin for the MA market was about double the gross margins of the other two markets, pegged at $855 per covered person for the group market, and $779 per covered person for the individual market.
Insurance markets are in the spotlight as the political debate over "Medicare for All" proposals heats up. Some of the plans being floated to overhaul Medicare could severely limit or totally curtail private insurance coverage.
While high average gross margins don't necessarily indicate a plan is doing well financially, because they don't take administrative expenses into account, they are nonetheless often a good window into insurer performance because they show how much insurers retain, including profits, after paying enrollees' medical claims, the report said.
The three insurance markets are doing well on this score, especially MA plans. Since 2006, average gross margins for MA plans have exceeded those in the individual and group markets, KFF said.
Average gross margins for MA plans dipped slightly after 2012 when federal payments to plans were reduced as a result of the Affordable Care Act. But since 2015, they've been climbing again, reaching $1,683 per member in 2018 — almost matching the previous high value of $1,692 per member in 2009.
The recent rise in average gross margins is mainly attributable to more and larger MA plans receiving bonuses for achieving high quality ratings, with total bonus payments more than doubling between 2015 and 2018.
For the period from 2016 to 2018, total gross margins averaged $23.9 billion per year for the MA market, $26.5 billion per year for the fully insured group market and $10.6 billion per year for the individual market.
"Each of these three health insurance markets now appear to generate high gross margins per person, particularly for insurers of Medicare Advantage Plans," KFF said.
While medical loss ratios were similar across all three markets, the MA insurers had higher gross margins because medical expenses and premiums paid to MA plans were substantially higher than in the individual and group markets because Medicare enrollees generally are higher users of healthcare than enrollees in the individual and group markets.
"This analysis suggests insurers are profitable in each of the three markets," KFF said, noting there is a particular focus in current Medicare for All policy debates on MA plans. Several of the health reform proposals put forward would allow private insurers to administer plans under a public option, which could be lucrative for payers.
"Based on the history of Medicare Advantage plans, setting payments to private plans at the appropriate rate remains a challenge, given competing goals of broadening plan choice and fiscal accountability," the report said. "With a new public program or option, policymakers are likely to face similar challenges, depending on their goals and priorities."
Democrats competing to take on President Donald Trump in the 2020 election have moved further left over the past year, with Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., supporting the creation of a government-run insurance program and the elimination of private insurance entirely.
Ex-Vice President Joe Biden is backing a public option, an expansion of the ACA passed on his watch under President Barack Obama in 2010, as a less disruptive alternative to Medicare for All.
A few candidates (including Sanders' Medicare for All bill co-sponsors Sens. Cory Booker of New Jersey, Kamala Harris of California and Kirsten Gillibrand of New York), fall somewhere in the middle, supporting Medicare for All with reservations in place for private coverage.