Medicare Advantage boasts highest gross margins for insurers

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The highest gross margins among insurers come from Medicare Advantage, which boasted gross margins per enrollee of $1,982 on average by the end of 2023, compared to $1,048 in the individual market, according to a new KFF analysis of insurers' financial performance.

KFF's brief examined two measures of financial performance – gross margins and medical loss ratios (MLRs) – in the Medicare Advantage, Medicaid managed care, individual and fully insured group health insurance markets using data reported by insurance companies to the National Association of Insurance Commissioners (NAIC) through the end 2023.

In that year, per enrollee gross margins were highest in the Medicare Advantage market and medical loss ratios were lowest in the individual insurance market, though analysts cautioned that higher margins and lower loss ratios don't necessarily translate into greater profitability since they don't account for administrative expenses or tax liabilities.

WHAT'S THE IMPACT

At the end of 2023, gross margins per enrollee – the amount by which total premium income exceeds total claims costs per person over a specified time period – ranged from $753 in the Medicaid managed care market to $1,982 in the Medicare Advantage market. Gross margins per enrollee in the group and individual markets were $910 and $1,048, respectively, roughly half the level observed among Medicare Advantage plans on average.

Potentially spurred by the prospect of strong financial returns, the Medicare Advantage market has grown substantially in the last decade, with more than 50% of eligible beneficiaries enrolled in a Medicare Advantage plan in 2023, according to KFF.

Gross margins for fully insured group plans declined significantly from 2020 to 2021 but have been increasing in subsequent years, data showed. In 2023, per enrollee gross margins in the group market were nearly the same as those in 2018.

Individual market gross margins were about 31% and 10% lower in 2023 than in 2018 and 2019, respectively. In 2018, following efforts to repeal the Affordable Care Act and the defunding of Cost Sharing Reduction subsidies, insurers raised individual market premiums substantially, which resulted in significantly higher margins than in earlier years, analysts said.

Per enrollee gross margins in the Medicaid managed care market decreased by 6% from 2022 to 2023 but remained higher than pre-pandemic levels, according to the data.

In 2023, MLRs were similar across the group, Medicare Advantage and Medicaid managed care markets and somewhat lower in the individual market. Simple loss ratios were around 84% in the individual market, 86% in the fully insured (group) market, and 87% in the Medicaid managed care and Medicare Advantage markets.

THE LARGER TREND

When KFF examined gross margin trends in Medicare Advantage last year, it found that while MA margins reverted back to pre-pandemic levels in 2021, those margins were still double those seen in other markets.

By the end of 2021, gross margins per enrollee had returned to pre-pandemic levels in the Medicare Advantage market, while gross margins in the individual and group markets were lower and Medicaid margins were higher, the data showed.
 

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.