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  • Analysis: The 'Big 5' Insurers Are Increasingly Dependent on Medicare and Medicaid for Revenue

    The degree to which the "big 5" private health insurers have come to rely on Medicare and Medicaid for their revenues may surprise you—but that reliance may be the key to increasing their involvement in the Affordable Care Act's individual marketplaces, according to authors of a new analysis in Health Affairs.

    The analysis looked at annual corporate filings with the Securities and Exchange Commission between 2010 and 2016 for the nation's 5 largest insurers—UnitedHealthcare, Anthem, Aetna, Cigna, and Humana—to analyze how revenue streams have shifted, and whether the ACA's marketplaces have had an impact on that shift. Combined, the insurers cover 43% of the total US insured population, or about 125 million people.

    Authors of the study focused on where revenues were coming from: the private group market (including administrative services-only arrangements); the individual market; and federal programs including Medicare Advantage, Medigap supplemental plans, Part D drug plans, and claims payment and network management in Medicaid programs. Here's what the study found:

    Growth was significant—especially in Medicare and Medicaid.
    Overall, membership in the companies' offerings grew by 23% from 2010 to 2016—twice the increase from 2005 to 2010. Between 2010 and 2016, the number of Medicare and Medicaid-related members nearly doubled, from 12.8 million to 25.5 million.

    The revenue landscape has shifted.
    In 2010, total revenue for the 5 insurers was $209 billion, with 44% of those revenues from government-related offerings. By 2016, revenues had increased to $360 billion, with 60% coming from Medicare and Medicaid.

    The individual market—including ACA marketplaces—account for a fraction of membership.
    Between 2010 and 2016, the number of members in individual plans experienced a 72% increase, from 2.3 million people to 3.8 million. But those numbers represent a small segment of the big 5's overall membership numbers—just 2% of the overall members in 2010, and 3% in 2016.

    Medicare and Medicaid programs seem to yield better benefit ratios for the companies.
    Among the 3 companies that reported on medical benefit ratios—the average revenue retained by the company per member given claims that are made—the government-related programs were more lucrative. The companies reported that they retained between 13% and 19% of Medicare and Medicaid premiums for administrative expenses, overhead, and profits, or about $1,500 to $2,000 per year, per member. The rate for commercially insured members was $624 to $912 per year per member. Overhead expenses were higher for Medicare Advantage operations than for the commercially insured, however.

    "In effect, these national insurers have become significant agents of publicly sponsored programs, acting on behalf of the federal government and states to purchase and arrange medical care on behalf of beneficiaries," authors write. Whether that's a good or bad thing by itself they don't say, but what they do believe is that there's a flipside to the situation: a private insurance industry so deeply dependent on public programs for revenue may offer an opportunity to shore up the ACA marketplaces.

    According to the authors, that opportunity is "tying," which would require any large insurance carrier wishing to do business with Medicare or state Medicaid programs to sponsor individual-market plans in those areas as well. "Requiring insurers that participate in Medicare Advantage in a given area to also serve the area's Marketplaces would strengthen state-level efforts to grapple with market stability and enhance the viability of the insurance Marketplaces," they write.

    Authors note that the idea comes with a certain amount of risk. After all, the companies' participation in Medicare and Medicaid is voluntary in the first place, and it's entirely possible that some insurers would back out of government-related programs altogether. Given that the insurance marketplace is increasingly consolidated, such a move by a dominant insurance company could have significant effects. "Without viable alternative insurance choices or a publicly sponsored insurance program, such as traditional Medicare, the threat of exiting could hold public programs hostage to increasing plan payments to retain insurer participation," authors write.

    The analysis was supported by a grant from the Commonwealth Fund.

    APTA offers a wide range of resources for members who want to learn more about the workings of private insurance at the association's Private Insurance webpage

    Research-related stories featured in PT in Motion News are intended to highlight a topic of interest only and do not constitute an endorsement by APTA. For synthesized research and evidence-based practice information, visit the association's PTNow website.


    • The Medicare advantage plans sure have squeezed a lot of money out of the Federal Government and seniors. Insurance companies receiving 13% to 19% overhead and profits of $2000/year for every member they sign up. Traditional Medicare works in a 3% to 4% overhead and profit margin according to most literature. Insurance company CEO compensation, advertising expense and high end real estate sure takes a large bite out of money that could be used for actual healthcare of everyone in the U.S. under "Medicare for All". Medicare needs to stop outsourcing to profiteering insurance companies and put our Federal money directly into healthcare.

      Posted by Betty Fackler on 12/13/2017 10:46 PM

    • What Betty and so many others forget is that Medicare does not cover the most common claims - the ones for MEDICATION "Traditional Medicare works in a 3% to 4% overhead " is in part because Medication is not paid by Medicare, so that admin cost is palmed off to private insurers and in part because 20% is not paid by Medicare,

      Posted by John van der Spek on 9/26/2018 3:52 PM

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