AM Best Special Report

Medicare Advantage: Strong Earnings Continue

Annual premiums growth has averaged nearly 10% over the last five years

August 31, 2020 — OLDWICK, N.J.–(BUSINESS WIRE)–The U.S. Medicare Advantage (MA) insurance segment continued its strong earnings trend in 2019, increasing by 58% year over year to $7.1 billion, driven by some of the segment’s largest health insurers according to a new AM Best report.

The Best’s Special Report, titled, “US Health: Favorable Underwriting Gains for Medicare Advantage,” notes that annual premiums growth has averaged nearly 10% over the last five years, this along with the growing over age-65 market, has resulted in more carriers offering MA products than ever before.

Enrollment more than doubled to more than 20 million in 2019, from 8.5 million in 2009, and now accounts for nearly 7% of health insurers’ total membership. Additionally, MA accounts for more than 28% of industry premium in 2019, growing from less than 20% in 2009.

However, premiums and enrollments remain concentrated among a handful of insurers. UnitedHealth Group holds the top market share in 24 states, and Humana in nine others. The two health insurers have accounted for over three-quarters of the market’s underwriting gains since 2013.

Profitability Driven By Scale

Profitability in this market segment is driven by scale, as margins tend to be low. In 2019, the average underwriting margin was positive for just the companies that wrote more than $500 million of premium at an average margin of 2.5-2.6%.

COVID-19 so far has had a modest impact on the MA market segment. Deferrals of elective and non-urgent medical care, along with many elderly and those with chronic or high-risk health conditions sheltering at home has caused a sharp decline in medical expenditures. The decline in medical care for non-COVID conditions has more than offset the impact of COVID-19 claims to date.

AM Best’s market segment outlook for the health insurance industry is stable despite the COVID-19 pandemic. AM Best acknowledges that there is a potential for deterioration in capital from an earnings and investment perspective. However, the favorable earnings trend over the past few years has resulted in the strengthening of risk-adjusted capitalization for health insurers, which should help to withstand any potential financial impacts of the coronavirus. Additionally, operating earnings for the health insurers have been strong through the first half of 2020.

To access the full copy of this special report, please visit www3.ambest.com/

 

 

 

A video discussion about this report with Associate Director Bridget Maehr and Senior Financial Analyst Antonietta Iachetta, both of AM Best, is available at http://www.ambest.com/v.asp?v=ambmedicareadvantage820.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.