Report: The Future of the Health Insurance Market Appears Stable
Momentum from the previous two years will propel the sector into the rest of 2024, says AM Best analysis.
Despite ongoing challenges, the current US health insurance sector is being classified as stable and thriving, according to AM Best’s annual market segment report.1
The company notes that the momentum gained from the “overall favorable” performance in 2022 extended into the first three quarters of 2023. Although the rise in the amount of net premiums written rose by about 10% in 2022, it diminished slightly to 7.6% through Q3 2023.
Generally speaking, the trend has consisted of the industry balancing lower earnings in the commercial segment, due to government programs’ larger profits over the past few years, according to the report. In order to offset these higher medical costs, carriers have enacted rate increases, particularly in the commercial segment, which is projected to continue this year. In some locations, last year’s and 2024’s increases resulted in a combined rate exceeding 20%, a number that could garner media attention.
As publicity surrounding the numbers increases, so too does the amount of scrutiny given out by state regulators. And due to various factors—including challenges within the supply chain, such as inflation—insurers are being forced to come up with efficient ways to responsibly manage healthcare spend.
“Health insurers also continue to face cost inflation challenges and have looked at implementing initiatives to manage the overall health care spend as healthcare, medical and pharmaceutical costs continue to rise,” noted Joseph Zazzera, director, AM Best. “Some of the main drivers are that healthcare providers are facing staffing shortages, salary pressures and supply cost increases.”
Capital and surplus have increased by 10% through Q3 2023, as a result of the favorable earnings over the past couple years. In fact, there has been a five-year combined average growth rate that has surpassed the net amount of written premiums. This trend of capital expansion is anticipated to continue through 2024, although this growth may be slower.
When it comes to US health insurers’ net income, 2022 saw a drop off because of lower net investment income, but due a rise in investment income—including favorable market conditions and interest rates—it improved notably through late 2023.
Over the years, exponential volume growth—partially due to the COVID-19 pandemic delaying Medicaid redeterminations—has helped counteract the low overall margins produced by Medicare Advantage (MA) and Medicaid. MA specifically has seen an uptick due to new age-ins, meaning that individuals are turning 65 and transitioning from traditional Medicare with and without Medicare supplements. Forecasters do not believe that these margins and earnings will continue. Of course, the aforementioned rise in volume signifies that Medicaid enrollment, earnings, and revenue prospered.
The underwriting income that is produced from MA and Medicaid is anticipated to settle back into its standard range, but products under the MA/Medicaid umbrella will remain profitable, according to the report.
The authors concluded that “Strong earnings were achieved partly through the MA market, which has generated robust underwriting results the past few years, as many seniors delayed care during the pandemic. With claims experience in 2023 tracking more closely to pre-COVID volume, several carriers have reported an increase in the incidence and severity of medical conditions.
“And, as in prior years, companies with higher star ratings and more appropriate risk-adjustment revenue payments will be able to absorb a lower level of profitability. Even with the pressure on the MA segment for 2024, earnings from the segment are expected to remain profitable albert lower than in recent years.”
Reference
1. Best’s Market Segment Report: US Health Insurers Expected to Remain Resilient amid Challenges in 2024. AM Best. February 29, 2024. Accessed March 4, 2024.
