Analysis

Health plan financial performance: 2011-2016

Health plan market trends in the wake of policy and market turbulence

​In the wake of policy and market turbulence, how have US fully insured health plans fared? While health plan market volatility typically dominates the headlines, our latest report shows that health plan financial performance varies heavily—given scale, geography, and population.

Health plan market trends

This report is the first installment in a Deloitte Center for Health Solutions series on financial performance trends in the US fully insured health plans market. It provides summary observations on overarching developments in a critical segment of the health insurance market during a turbulent six-year period.

The term we use in this report, "fully insured," refers to comprehensive medical coverage provided by state-licensed insurance companies that assumes financial risk for covered health benefits in exchange for premiums paid by employers, governments, consumers, and other sponsors. Fully insured plans also can be defined by what they are not: self-insured plans or plans under administrative services only (ASO) contracts. We segment the fully insured market into four primary lines of business: commercial group, commercial individual, Medicare Advantage, and Medicaid managed care. In 2016, fully insured health plans covered 57 percent of the US population, or 63 percent of all Americans with health insurance coverage.

This paper presents five primary findings and focuses on overall market trends and observations. Subsequent installments will analyze trends in the government programs segment (including Medicare Advantage and Medicaid managed care) and the commercial segments (including group and individual lines of business).

Key findings:

  1. At the industry level, the top line prospered while the bottom line deteriorated. Fully insured health plan revenue increased 55 percent between 2011 and 2016, but underwriting gains in 2016 were 29 percent below 2011 results.
  2. At the company level, there was a significant increase in plans with annual losses, a steep decline in average margins, and widening performance variation among plans. These unfavorable trends across a universe of 238 health plans under study became manifest in 2014, the initial year of major coverage expansions under the Affordable Care Act (ACA).
  3. The largest health plans captured a disproportionate and growing share of industry underwriting gains. In 2016, the top three US health plans by fully insured revenue generated 84 percent of total US underwriting gains, and the top ten plans accounted for 92 percent. The top three health plans by national revenue exhibit performance that is dramatically differentiated from that of other market participants, including that of other health plans in the top ten.
  4. For-profit health plans grew faster and posted significantly higher margins than not-for-profit health plans. In 2016, for-profit plans accounted for 76 percent of underwriting gains, compared to their 66 percent share in 2011.
  5. State insurance markets exhibit increased volatility. State-level results illustrate a substantial increase in the number of states with unfavorable swings in their insurance markets' financial performance.

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Perspectives on health plan financial performance

​Although this study is not a characterization of the larger US health insurance market, it probes the segments that have been most impacted by public policy shifts and remain the subject of continued scrutiny, debate, and uncertainty. Here are some of our other perspectives based on the research we have included in this report:

  • Policy as driver. The results of our analysis demonstrate the preeminence of public policy as a driver of health insurance marketplace change. The fully insured health plan market was buffeted by ACA regulations, policies, and programs. Many of the findings discussed in this paper can be categorized into pre- and post-2014 results that reflect the direct and indirect impacts of ACA on the private health insurance market.
  • Mixed performance. Our study shines a brighter light on the many US health plans that have struggled financially, particularly since 2014, in a disrupted and highly competitive market. Many (but not all) of the health plans posting underwriting losses are smaller scale companies, often nonprofits, which lack the financial resources to withstand many more "bad years." Many of these health plans play critical roles in their local communities and health care ecosystems; their financial prospects warrant continued attention.
  • Scale matters. In health care circles, we have long appropriated the famous Tip O'Neill line that "all politics is local," translated for our purposes as "all health care is local." In our work with clients, we often focus on the need to build and leverage local market scale. The results of this study also demonstrate the financial performance benefits associated with national scale.

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In 2016, the Top 3 health plans generated 84 percent of all underwriting gains in the fully insured market, compared to 55 percent in 2011.

Looking ahead: We are currently developing upcoming installments in our Health plan financial trends series. Next up: a deeper dive into government-sponsored health insurance market trends, particularly Medicare Advantage and Medicaid managed care. That report will be followed by a more detailed analysis of trends between 2011-2016 in the commercial group and commercial individual segments.

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