Preliminary medical loss ratio data illustrates the problemsthat have faced a number of the largest U.S. health insurers in the individual market.
Of the top 20 insurers based on individual, small-group and large-grouppremiums, 15 had a ratio in excess of 100% in 2015, up from eight in 2014 and onlyfour in 2013. A percentage north of 100% is a bad sign for profitability, indicatingthat the insurer took in less on earned premiums than it paid out on claims andquality improvement.
The information above is derived fromthe Supplemental Health Care Exhibit, Part 1, a section contained in annual NAICstatutory statements. This data is calculated gross of recoveries from federal andstate governments under an Affordable Care Act reinsurance program and thus directlymeasures profitability of the insurers' business.
Publicly traded companies such asUnitedHealth Group Inc.have made no secret of the lossesthey have sustained from their participation in the health exchanges mandated underthe Affordable Care Act. UnitedHealth expects a combined loss of about $1 billionfor the 2015 and 2016 policy years, with $475 million from the 2015 policy yearand $650 million from the 2016 policy year, as executives indicated during a conferencecall held April 19, according to a transcript.In 2017, UnitedHealth plans to participate in a "substantially smaller"number of states than the 34 it participated in during the 2016 policy year, accordingto the company's latest Form 10-Q.
The statutory data shows that UnitedHealthis not alone. A number of private companies, such as Health Care Service Corp. a Mutual Legal Reserve Co., endedthe year with MLRs above 100% as well. While Health Care Service Corp. is the entity'slegal name, it operates through its Blue Cross and Blue Shield plans in Illinois,Montana, New Mexico, Oklahoma and Texas.
In 2015, individual business madeup roughly one-fifth of Health Care Service Corp.'s total earned premiums on healthbusiness, which worked in its favor. These other lines helped keep its overall MLRlower, which came in at 90.4% for 2015, as disclosed in the MD&A section ofits annual statutory statement.But this was still up from 2014, when its MLR stood at 86.5%. The company citedincreased benefit expenses, particularly related to higher prescription drug pricesand higher costs of care for ACA-related business as factors behind the uptick.
As the statutory data shows, prescriptiondrug costs made up about 23.4% of Health Care Service Corp.'s total incurred claimson its individual business in 2015, and these were on the rise. Such costs totaled$1.87 billion in 2015, up roughly 90.6% from $981.6 million in 2014.
Per the filing instructions, theseare the costs of prescription drugs and other pharmacy benefits covered by the reportingentity, excluding prescription drug charges included in hospital charges. Some risewas to be expected, as Health Care Service Corp. boosted premiums earned on itsindividual business by about 37.8% in 2015. But higher drug costs wereprevalent across the nation. In a recently released report, the S&P Global Institutefound that national health care costs in the commercial market rose 6.50% in 2015,with drug costs jumping 15.83%.
Meanwhile, Health Care Service Corp.'ssmall-group and large-group plans had much lower medical loss ratios in 2015. Thiswas common across the other top 20 companies as well, with none breaching 100%.
Click here for a downloadable template featuring market share calculations for health insurers, based on the Healthcare Supplement and/or A&H Policy Experience Exhibit from statutory statements.