Medicare Advantage margins higher for insurers despite dip

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Payers saw their Medicare Advantage margins revert back to pre-pandemic levels in 2021, yet those margins were still double those seen in other markets, according to a new analysis from the Kaiser Family Foundation.

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.

It was gross margins, or the amount by which total premium income exceeds total claims costs per enrollee per year, that KFF examined in its analysis. Gross margins are an indicator of financial performance, but positive margins don't necessarily translate into profitability since they don't account for administrative expenses or tax liabilities.

Through the end of 2021, gross margins in the Medicare Advantage market averaged $1,730 per enrollee, similar to levels seen in 2018 and 2019 before the pandemic began. In 2021, gross margins for Medicare Advantage plans were substantially higher than those seen in the individual ($745 per enrollee), fully insured group ($689 per enrollee), and Medicaid managed care ($768 per enrollee) markets.

Among fully insured group plans, gross margins were 17% lower in 2021 than in 2019. Individual market gross margins were 36% lower in 2021 than in 2019. However, individual market plans were arguably priced too high in the years leading up to the pandemic, according to KFF.

Another way to assess insurer financial performance is to look at medical loss ratios, or the percent of premium income that insurers pay out in the form of medical claims. On that score, loss ratios were similar across all markets. Simple loss ratios were 87% in the Medicare Advantage market, 88% in both the individual and fully insured group markets, and 86% in the Medicaid managed care market. 

However, because each market has different administrative needs and costs, this does not imply that the markets are similar to each other in profitability, KFF said.

WHAT'S THE IMPACT

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 expected to enroll in a Medicare Advantage plan in 2023. Insurers that fall short of required loss ratio requirements for multiple years face penalties, including the possibility of being terminated. 

To avoid such a risk, KFF predicted that some Medicare Advantage insurers with loss ratios below 85% may take this opportunity to offer new or more generous extra benefits, such as over-the-counter allowances, meals following hospital stays or transportation, in addition to gym memberships, dental, vision and hearing benefits that are offered nearly universally to help retain and attract new enrollees.

THE LARGER TREND

Medicare Advantage continues to grow, hitting record enrollment this year and increasing overall program participation by 5.5%, while adding 1.5 million beneficiaries. But according to data from Chartis, the pace of this growth is slowing.

In 2020, 2021 and 2022, Medicare Advantage enrollment grew by 1.9 million, 2.2 million and 2.3 million beneficiaries, respectively. This year, Medicare Advantage enrollment grew by just 1.5 million. While that's still significant growth, it does show evidence of a deceleration.

At the same time, original Medicare continues to decline, losing 339,000 enrollees this year – a significant but smaller loss than previous years. Special Needs Plans (SNP) enrollment accounted for two-thirds of total market growth. SNP enrollment is up 20% from 2022, driven by considerable D-SNP enrollment gains.

A total of 29.5 million beneficiaries are now enrolled in a Medicare Advantage plan, according to Chartis.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com