Government health plan financial trends: 2011-2016
Medicare Advantage and Medicaid managed care trends
Compared to the financial performance of US health plans overall, how have government programs fared over the past few years? This second report in our health plan financial trends series explores six trends in Medicare Advantage and Medicaid managed care.
- Government health plan performance: Six key findings
- The ACA’s impact on financial performance
- Pushing toward profitability
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Explore the full series
Government health plan performance: Six key findings
How have US health plans' government lines of business fared in the wake of health policy and market turbulence? While many health plans increasingly regard Medicare Advantage and Medicaid managed care as growth engines, our most recent analysis indicates that health plan financial performance in these segments between 2011 and 2016 varied widely, with significant differences related to scale, tenure, and geography.
What were the biggest trends we observed?
- Government programs accounted for a large and growing share of health plan revenue and underwriting gains. The share of fully insured revenue attributable to Medicare Advantage and Medicaid managed care grew from 33 percent in 2011 to 46 percent in 2016. The share of total underwriting gains from Medicare Advantage and Medicaid managed care increased from 33 percent in 2011 to 57 percent in 2016.
- The Medicare Advantage business experienced significant top-line growth and bottom-line volatility, including a notable decline in underwriting performance in 2014 and 2015. Industry-wide underwriting gains declined from $4.3 billion in 2012 to $1.3 billion in 2015, before rebounding to $4.8 billion in 2016.
- In Medicaid managed care, aggregate plan revenue increased steadily between 2011 and 2016, and underwriting performance grew impressively before retrenching in 2016. Medicaid managed care revenue increased from $64 billion in 2011 to $207 billion in 2016. Underwriting gains doubled in 2014 and 2015 before falling 50 percent in 2016.
- The largest Medicare and Medicaid plans by national revenue captured a disproportionate and growing share of industry underwriting gains. In Medicare Advantage, the top two plans generated 80 percent of aggregate underwriting gains and 46 percent of aggregate revenue in 2016. In Medicaid, the top three plans captured 80 percent of 2016 underwriting gains and 37 percent of aggregate revenue.
- Medicare Advantage performance variation widened beginning in 2014; smaller plans and newer entrants experienced substantial headwinds. The median underwriting results of US health plans in the Medicare Advantage business were below breakeven levels between 2014 and 2016, with over 50 percent of plans reporting losses during this period.
- Medicaid managed care markets exhibited widening performance variation at the company and state levels beginning in 2014. Medicaid plans in states that expanded Medicaid eligibility under the Affordable Care Act (ACA) had higher margins in all years except 2016.
The ACA’s impact on financial performance
The Affordable Care Act brought many changes to Medicare Advantage and Medicaid managed care, affecting plan performance in both lines of business. The ACA introduced a number of important revisions to existing payment methodologies, including fundamental revisions to the Medicare Advantage benchmark model, bonus payments linked to quality ratings, and rebates to plans with below-benchmark bids.
These ACA provisions were designed to reduce payments to Medicare Advantage plans, with the expressed intent of bringing Medicare Advantage payment levels per beneficiary closer to those in traditional Medicare fee-for-service (FSS) plans and generating Medicare program savings to help finance other ACA spending priorities.
The share of fully insured revenue attributable to Medicare Advantage and Medicaid managed care increased by 13 percentage points, from 33 percent in 2011 to 46 percent in 2016.
Pushing toward profitability
Health plans may be attracted to the relative stability and profitability of government program lines of business. However, our data shows that attaining profitability can be challenging, even several years after entering the Medicare Advantage market and that a number of smaller plans exit markets without ever becoming profitable. And particularly in Medicaid managed care, state policies and payment rates are likely to drive differences in health plan financial performance.
To learn more about financial trends for government health plans, download the full report. And stay tuned for the next installment in our health plan financial trends series.