Best’s Market Segment Report

Health Insurance Industry Sustains Strong Earnings Momentum in 2018

ACA exchanges remain profitable

March 06, 2019 — OLDWICK, N.J.–(BUSINESS WIRE)–Earnings of U.S. health insurance companies improved significantly in 2018, driven by favorable medical cost trends, lower utilization and steady-to-declining pharmacy costs, as well as a lower tax rate and the positive impact of the elimination of the alternative minimum tax. In addition, according to AM Best’s 2019 Review/Preview market segment report on the health insurance industry, the individual Affordable Care Act (ACA) exchange business has remained profitable, further benefiting overall earnings.


Profits follow a turnaround in the individual market

The Best’s Market Segment Report, titled, “2019 Review & Preview: U.S. Health,” states that through third-quarter 2018, health insurers’ net income grew by 19% to $25.8 billion compared with the same prior-year period. The trend of positive underwriting results for the commercial market began in 2017, following losses in 2014-2016, which peaked at $2.1 billion in 2016, driven by the individual ACA exchange business. The commercial health insurance segment is composed of two sub-segments: the individual market and the employer group market, and recent underwriting profitability has been driven largely by the turnaround in the individual segment. AM Best expects the individual segment to remain profitable, but for margins to decline, as pricing for 2019 includes assumptions that the sustained lower level of medical trend will continue, as well as adjustments for a potential deterioration in the risk pool, owing to the elimination of the individual mandate. The loss of healthier risks to short-term limited duration medical plans and association health plans, which are lower-cost, non-ACA-compliant coverage options, also is a factor. AM Best also expects the employer group market to remain profitable in 2019, although significant enrollment gains for the segment are not anticipated.

Medicare: More Active Care Management Programs

The growing number of senior citizens aging into the Medicare program continues to capture the interest of health insurers, which has resulted in membership and revenue growth potential for Medicare Advantage (MA), Medicare Prescription Drug and Medicare supplement carriers. Projected increases in spending for Medicare and Medicaid have resulted in elevated interest by the federal and state governments for more active care management programs, for which health insurance companies have established programs. MA premiums have more than doubled over the last decade, reaching more than $200 billion in 2017. AM Best expects MA to remain a significant source of premium revenue for health insurers; however, as MA becomes a larger portion of total revenues, insurers become more vulnerable to legislative risk, with regard to future funding and the rules of the program.

through third-quarter 2018, health insurers’ net income grew by 19% to $25.8 billion compared with the same prior-year period...

Medicaid remains the largest government-sponsored health program, covering almost 73 million individuals. Medicaid managed care remains profitable, although margins have narrowed from where they stood in 2014-2015. AM Best believes Medicaid managed care earnings also will remain profitable, but for margins to stay at the lower levels of recent years, as insurance companies price closer to actual trends and government-funded programs are not typically high margin lines of business.

Despite the recent positive trends, health insurers have conveyed to AM Best that they are aware that these trends will not last forever, and understand the need to remain vigilant and stay apprised of emerging issues and cognizant of rising cost trends and utilization. To access a copy of this market segment report, which includes detailed looks at regulatory movements and supplemental health, voluntary and employee benefit trends, as well as market segment outlooks for the major individual health lines of business, please visit

To view a video interview with AM Best Senior Director Sally Rosen and Associate Director Bridget Maehr on this report, please visit here.



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