Best's Review

AM BEST'S MONTHLY INSURANCE MAGAZINE



What AM Best Says
AM Best: COVID-19 Dampened 2020 Commercial Health Sales

Most insurers reported the individual market and employer group segment were sticking with their existing carriers during the pandemic, which caused a decline in sales.
  • John Weber
  • March 2021
  • print this page

 

The U.S. commercial health insurance segment's share of medical premiums is down but earnings remain favorable, according to a Best's Special Report.

While the pandemic slowed new sales of commercial health insurance, it increased persistency, said Joe Zazzera, director, AM Best.

Jason Hopper, associate director, AM Best, joined Zazzera to discuss the report US Commercial Health Premium Flattens, Enrollment Continues to Slide with AM Best TV. Following is an edited transcript of the interview.

The AM Best report notes the commercial health segment's share of overall medical premium is down. What is driving that?

Hopper: I'd start by saying that the commercial segment is the largest segment of the health insurance industry in terms of premium as well as enrollment. Commercial segment premiums have been consistently increasing, though they had been flat in 2019 and through the third quarter of 2020, our latest available data. Despite the increase in premium, the share has been declining for a number of years, accounting for 56% of total health premium in 2009, dropping all the way to 40% in 2019. Even though premiums have been growing, the growth rates at government programs, Medicaid expansion and Medicare Advantage, have been growing a lot faster, which has in turn pushed the share down. Large increases due to the Affordable Care Act and the aging population of the United States have played a factor into the growth into the Medicare Advantage space.

Jason Hopper AM Best

Another thing that might factor in 2021 profitability is more normalized utilization, after we saw a huge decrease in the second and third quarter due to the impacts from COVID, elective surgeries getting canceled, and things of that nature.

Jason Hopper
AM Best

What are the different groups that make up the commercial health segment?

Hopper: There are two main areas. One is the fully insured and one is the self-insured. The fully insured, which is what we predominantly talk about and refer to when we speak of the commercial segment, includes individual health insurance, such as the Affordable Care Act marketplace exchanges, as well as the small employer group and the large employer group.

On the other hand, I mentioned self-insured. That's where employers take on their own risk and buy administrative service contracts or administrative services-only type products. Those types of products do have lower margins for health insurers.

The large-group employer market is by far the largest segment within the commercial space, accounting for between 55% to 60% of premium. The individual space is the second largest since 2015, again, because of the Affordable Care Act and the growth that it brought upon it there.

That now accounts for about a quarter of premium, up from about 17% pre-ACA. The small group has seen consistent premium growth. Again, similar to the government programs, the growth at the large group and the individual group has outpaced the small group, therefore pushing its share down.

Is COVID impacting the segment?

Zazzera: From an enrollment and top-line premium view, the virus didn't result in a larger-than-expected enrollment or premium decline in the commercial health segment through the third quarter. Most carriers were indicating that the individual and groups were sticking with their existing carriers during the pandemic, which did dampen sales.

On the flip side, persistency was better. Many employees were furloughed, but they were given the option to keep their health insurance benefits. The government was implementing federal legislation and programs aimed at providing financial assistance, stimulus, tax relief, forgivable loans, to help individuals and small-group employers.

All this has helped keep stability in membership and premium. We have yet to see the final year-end enrollment and premium numbers, and what they'll look like with the start of job losses in December and the rise in COVID cases during the latter part of 2020, as well as premium rebates in the fourth quarter. We have to see what that's going to mean for premium and enrollment. From a claims perspective, health insurers saw an overall delay in the utilization in the first half of 2020. Surgeries were postponed, people stayed away from doctors' offices. That dynamic was a bit more pronounced for commercial health writers.

Claims activity began to normalize—most were reporting in June it started. Then over the summer, claims were back at normal for most health insurers. There was an offset to the lower claims, where insurers did bolster benefits and payments to providers, offering premium credits, co-pay waivers for virtual visits, as well as payments for PPE and telehealth visits.

Joe Zazzera AM Best

Persistency was better. Many employees were furloughed, but they were given the option to keep their health insurance benefits.

Joe Zazzera
AM Best

How does the ACA's enrollment look?

Zazzera: In December, CMS actually reported that the ACA's open enrollment for 2021 was steady with the prior year, showing about 8.2 million enrollees. That's despite several states having switched to state-based exchanges. This is a good indicator that there's some stability now for this segment. The commercial market individual ACA exchange enrollment is stabilizing them.

As we look forward, the president is proposing limiting premiums to 8.5% of income as part of his COVID package the American Rescue Plan. This could result in an increase in enrollment in 2021.

How are insurers in the commercial segment faring from an earnings perspective?

Hopper: There definitely has been a turnaround. In the early years of the ACA, specifically the exchange business, there was a lot of profitability woes. Many companies were experiencing underwriting losses. That has since now turned around after pricing corrections have been implemented. The small and large group employer segment has seen tight margins, but has been fairly consistent and profitable. Profitability has been felt throughout the industry. Over 70% of writers in the individual market now experience profitability. Over 60% in the small group and about half in the large group.

ASO [administrative services only] is also profitable, but does have tighter margins. One thing that we expect to see heading into 2021 and forward, as we see this shift to more ASO-type business, we do expect overall margins to continue to contract a little bit.

Another thing that might factor in 2021 profitability is more normalized utilization, after we saw a huge decrease in the second and third quarter due to the impacts from COVID, elective surgeries getting canceled, and things of that nature. There are hot spots in the country now where elective surgeries are getting canceled again. We'll see how long that might last and how widespread that might become.

Is there a lot of uncertainty when it comes to expectations in 2021?

Zazzera: There's uncertainty around the economy, the impact it's going to have on investments, balance sheets and operating performance metrics. We have the new administration. There's going to be new legislation and regulations that the health sector's going to have to deal with. Earnings could be pressured as utilization increases. Last year, there was talk about a pent-up demand, the fact that that could come into play. There's the trajectory of COVID and the vaccines' effectiveness.

This all is going to have impact on sales, enrollment, premium, and earnings. Of course, there's operational uncertainties that carriers are going to have to deal with as well.


John Weber is a senior associate editor. He can be reached at john.weber@ambest.com.



Want More News From Best's Review?

Sign up for our Best's Review Newsletter and we'll send you featured news stories straight to your inbox.

Subscribe

Back to Home