consulting actuaries health insurer financial insights...as we present the third edition of our...

As we present the third edition of our Health Insurer Financial Insights newsletter, we find ourselves in the midst of unprecedented times. This newsletter focuses on market profitability and capitalization trends for public and non-public health insurers, and their claims experience through the first half of 2020. Section 04 provides insight into how health carriers are reporting the impact of COVID-19. Our aim is to keep you abreast of key market trends and dynamics that impact health insurer financial results and profitability. We hope you enjoy the newsletter and find it informative. Please look for our next edition this Fall.

Q2 YTD 2020 Statutory Financials: Individual, Group, Medicare, and Medicaid Markets Overall, health insurer profit margins improved in 2020. Pre-tax margins increased in Q2 2020 with decreased loss ratios in all markets due to the impact of COVID-19 on developing claims experience. The differences by line of business indicate that COVID-19 has had a larger impact on the claim experience for certain services, such as Dental, when compared to major medical and Rx services.

2019 Market Capitalization: Statutory Capital/Risk Based Capital (RBC) TrendsMarket capitalization measured by Total Adjusted Capital (TAC) increased due to small increases in market size (measured by premium) and very little total change in Risk Based Capital ratios. Overall, Public Companies saw minor decreases to their RBC ratios in 2019, while Non-Public Blues saw increases in both TAC and RBC ratios.

Public Companies Financial PerformancePublic Companies continue to perform well. We reviewed the profitability of their insured blocks of business and noted that margins increased, as loss ratios improved in Q2 2020 as a result of reduced utilization during the COVID-19 pandemic. However, operating expenses have been increasing in recent quarters.

HEALTH INSURER FINANCIAL INSIGHTS

Consulting Actuaries

VOLUME 3 | SUMMER 2020

IN THIS ISSUE

02

01

03

04

Q2 YTD 2020 Statutory Results by Market

Market Capitalization: Statutory Capital/RBC Trends

Public Companies Financial Performance

COVID-19 Corner

2Copyright © 2020 Oliver Wyman

HEALTH INSURERSFINANCIALS BY MARKET

ALL MARKETS (COMMERCIAL, MEDICARE, MEDICAID, AND OTHER)

1. NAIC health blanks only. Excludes NAIC Life/Accident/Health, NAIC P&C, and CA DMHC Filers. Data as of September 2020.

Profit MarginOverall, health insurer profit margins improved in Q1–Q2 2020 to 5.9%. Margins increased for Public Companies from 2019 by 2.7%. For Non-Public Blues, the margins increased by 4.0% over these reported in 2019 and for Other Health Carriers margins improved by 3.6%.

We summarize the reported profitability trends of carriers with Q2 2020 YTD statutory financial information. We also summarize enrollment and loss ratio trends in the individual, group, Medicare, and Medicaid markets. Overall, pre-tax margins increased in Q1–Q2 2020 to 5.9% with decreased loss ratios due to the impact from COVID-19 lockdowns.

chart size 3.05 x 1.65



pg2 Total

Pre

-ta

x P

rofi

t M

arg

in (

as

% o

f P

rem

ium

)

2015 2016 2017 2018 2019 Q1–Q2 2020

6.5%

5.9%

5.9%

4.7%

-2%

-1%

0

1%

2%

3%

4%

5%

6%

7%

Public Companies

Other Health Carriers

All Health Carriers

Non-Public Blues

ALL MARKETS PRE-TAX PROFIT MARGINS2015 TO Q1–Q2 2020/PUBLIC VS. BLUE VS. OTHER

Q2 YTD 2020 STATUTORY1 RESULTS BY MARKET01

Carrier Type 2015 2016 2017 2018 2019 Q1–Q2 2020vs 2019 Q1–Q2 2020

Public Companies 4.6% 4.5% 4.6% 4.6% 3.8% 2.7% 6.5%

Non-Public Blues -1.0% 0.6% 3.5% 4.2% 1.9% 4.0% 5.9%

Other Health Carriers 2.5% 2.3% 3.9% 2.8% 1.1% 3.6% 4.7%

All Health Carriers 2.4% 2.8% 4.1% 4.0% 2.6% 3.3% 5.9%


COMMERCIAL GROUP PREMIUMS PMPMPUBLIC VS. BLUE VS. OTHER

COMMERCIAL GROUP ENROLLMENTPUBLIC VS. BLUE VS. OTHER

Premiums PMPM Group premiums PMPM increased slightly in Q1–Q2 2020, with average market premiums reaching $467 PMPM for Q1–Q2 2020, an increase of 1.8% from 2019. The increase is the lowest for Public Companies (0.0%) and highest for Other Health Carriers (6.6%).

GROUP MARKET

COMMERCIAL GROUP LOSS RATIOPUBLIC VS. BLUE VS. OTHER

6

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2015 2016 2017 2018 2019 Q1–Q2 2020

2015 2016 2017 2018 2019 Q1–Q2 2020

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2015 2016 2017 2018 2019 Q1–Q2 2020

$360

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$460

$480

All Carriers Change: 5.6% 3.7% 4.5% 3.0% 1.8%

6

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2015 2016 2017 2018 2019 Q1–Q2 2020

2015 2016 2017 2018 2019 Q1–Q2 2020

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2015 2016 2017 2018 2019 Q1–Q2 2020

$360

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$480


Public Companies


All Health Carriers

Non-Public Blues

Public Companies


All Health Carriers

Non-Public Blues

Public Companies


All Health Carriers

Non-Public Blues

Loss RatioReported loss ratios decreased -8.1% to 77.6% in Q1–Q2 2020 from 2019. The decrease was consistent across the three insurer types.

Enrollment2

Enrollment in the comprehensive fully insured group market continued to decline in Q1–Q2 2020 at an average of -3.8% from 2019.


Public Companies 80.0% 80.9% 81.7% 82.1% 84.0% -8.1% 75.9%

Non-Public Blues 83.7% 82.9% 81.7% 81.9% 84.2% -8.2% 76.0%

Other Health Carriers 88.0% 88.4% 87.8% 87.2% 90.0% -8.3% 81.8%

All Health Carriers 83.8% 83.8% 83.4% 83.4% 85.7% -8.1% 77.6%

1. NAIC health blanks only. Excludes NAIC Life/Accident/Health, NAIC P&C, and CA DMHC Filers. Data as of September 2020.2. Some of the market enrollment is not included, most notably those insured by Life/Accident/Health statutory filers, which needs to be considered when reviewing this chart and

others in this report.


2015 2016 2017 2018 2019 Q1–Q22020

Total Enrollment (in Millions) 34.5 32.5 31.8 30.9 29.8 28.6


2015 2016 2017 2018 2019 Q1–Q22020


COMPREHENSIVE INDIVIDUAL ENROLLMENTPUBLIC VS. BLUE VS. OTHER

COMPREHENSIVE INDIVIDUAL PREMIUMS PMPMPUBLIC VS. BLUE VS. OTHER

COMPREHENSIVE INDIVIDUAL LOSS RATIOPUBLIC VS. BLUE VS. OTHER

2015 2016 2017 2018 2019 Q1–Q2 2020

2015 2016 2017 2018 2019 Q1–Q2 2020

Public Companies


All Health Carriers

Non-Public Blueschart size 3.05 x

1.65

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11.6% 21.1% 20.0% -1.4 % 1.3%All Carriers Change:

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2015 2016 2017 2018 2019 Q1–Q2 2020

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2015 2016 2017 2018 2019 Q1–Q2 2020

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Non-Public Blues

Public Companies


All Health Carriers

Non-Public Blues

Public Companies


All Health Carriers

Non-Public Blues

Premiums PMPM Individual premiums remained fairly flat in Q1–Q2 2020 with reported average individual market premiums of $499 PMPM, an increase of 1.3% from 2019. For Public Companies the change in premium was the highest at 6.0% and for Other Health Carriers, the lowest at -2.4%.

Loss RatioReported loss ratios decreased by 7.4% to 72.2% in Q1–Q2 2020 from 2019. The decrease is largest among Public Companies at 12.0% and the lowest for Non-Public Blues and Other Health Carriers at 5.9% and 5.8%, respectively.

Enrollment2

Enrollment remained essentially unchanged from 2019. Public and Other Health Companies increased enrollment slightly from 2019 levels. Public Companies market participation is likely driven by a more stable market and improved financial performance.



INDIVIDUAL MARKET



Public Companies 92.8% 93.9% 79.8% 70.7% 76.2% -12.0% 64.1%

Non-Public Blues 105.5% 92.3% 79.9% 70.5% 78.7% -5.9% 72.8%

Other Health Carriers 104.8% 106.4% 92.5% 80.5% 84.2% -5.8% 78.3%

All Health Carriers 101.6% 95.7% 82.7% 73.4% 79.6% -7.4% 72.2%


Enrollment2

Enrollment growth in the Medicare Advantage (MA) market continued in Q1–Q2 2020 with the overall trend of gradual increases driven by population demographics and the continued popularity of MA plans. The majority of the growth has been for Public Companies.

MEDICARE ENROLLMENTPUBLIC VS. BLUE VS. OTHER

2015 2016 2017 2018 2019 Q1–Q2 2020

2015 2016 2017 2018 2019 Q1–Q2 2020



Pg 5 Medicare

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Non-Public Blues

Public Companies


All Health Carriers

Non-Public Blues

Loss RatioReported loss ratios decreased by 5.9% to 79.9% in Q1–Q2 2020 from 2019. The decrease is the largest for Non-Public Blues at 7.7% and the lowest for Other Health Carriers at 3.3%.

Public Companies


All Health Carriers

Non-Public Blues

Loss RatioReported loss ratios decreased by 3.5% to 87.1% in Q1–Q2 2020 from 2019. The decrease is the largest for Public Companies at 5.4%. Other Health Carriers reported a 1.5% higher loss ratio.

MEDICAID LOSS RATIO PUBLIC VS. BLUE VS. OTHER

Enrollment2

Enrollment increased by 0.7 million in insured Managed Medicaid programs for Q1–Q2 2020. Public Companies had the largest increase at 0.6 million.

MEDICAID ENROLLMENTPUBLIC VS. BLUE VS. OTHER

Public Companies


All Health Carriers

Non-Public Blues

MEDICARE LOSS RATIOPUBLIC VS. BLUE VS. OTHER

2015 2016 2017 2018 2019 Q1–Q2 2020

2015 2016 2017 2018 2019 Q1–Q2 2020



Pg 5 Medicare

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2015 2016 2017 2018 2019 Q1–Q2 2020

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MEDICARE ADVANTAGE

MEDICAID MANAGED CARE


2015 2016 2017 2018 2019 Q1–Q22020


2015 2016 2017 2018 2019 Q1–Q22020



We compared the reported PMPM incurred claims in second quarter of 2020 to expected claims based on the first quarter 2020 reported PMPM claims and typical growth from the first to second quarter to highlight the impact of COVID-19 on developing claims experience. We summarized the reported data by major lines of business: Individual and Group Comprehensive; Medicare Advantage; Medicare Supplemental; Medicaid; and Dental. Across all the lines of business the reported PMPM claims in Q2 of 2020 were about 11% lower than expected or -$38 on a PMPM basis. The difference in actual to expected change ranges from about 9% for Medicare Advantage to 42% for Dental.

The expected Q2 2020 claims across all lines of business were estimated based on average change in PMPM incurred claims from Q1 to Q2 as reported for first half of 2017 to 2019. As shown in the chart to the right, the average Q1 to Q2 change in incurred claims PMPM was 2.8% for the period from 2017 to 2019 which we utilized as pre-COVID-19 basis for the expected Q1 to Q2 growth rate. We applied the growth rate to the Q1 2020 reported incurred claims PMPM of $342 to estimate the expected claims for Q2 2020 at $352. The reported claims were $313 PMPM in Q2 of 2020 which is about 8.4% lower than Q1 2020 and estimated 11% lower than expected claims. The lower than expected reported claims in the second quarter of 2020 is clearly visible in the chart. This reduction is attributable to reduced utilization during the COVID-19 pandemic.

Q2 2020 REPORTED CLAIMS EXPERIENCE

Incurred Claims by Line of BusinessWe performed the comparison of the expected to reported incurred claims for Q2 of 2020 across the major lines of business which are summarized in the table below. In column 6 of the table, the reported less expected claims difference is the lowest for Medicare Advantage (9%) and Medicaid (10%) and the highest for Medicare Supplement (18%) and Dental (42%). In the Comprehensive Individual and Group lines of business the reported to expected differences are slightly higher than the average at about 13% and 14%, respectively. The differences by line of business indicate that COVID-19 has larger impact on Dental than major medical and Rx services provided by the comprehensive product lines.

Line of Business

2017–2019 Average Change Q1 to Q2

2020 Q1 Reported Claims PMPM

2020 Q2 Reported Claims PMPM

Reported Change Q1 2020 to Q2 2020

2020 Q2 Expected

2020 Q2 Reported minus Expected Claims Change

2020 Q2 Reported minus Expected Claims PMPM

(1) (2) (3) (4) = (3) (2) - 1 (5) = (2) x [1 + (1)] (6) = (4) - (1) (7) = (3) - (5)

Comprehensive Individual 12.3% $363 $362 -0.3% $408 -12.6% -$46

Comprehensive Group 5.8% $378 $349 -7.8% $400 -13.6% -$51

Medicare Advantage 0.5% $921 $841 -8.7% $926 -9.3% -$85

Medicare Supplement -13.0% $186 $129 -30.7% $162 -17.7% -$33

Medicaid 1.7% $378 $347 -8.3% $385 -10.0% -$38

Dental -0.1% $21 $12 -42.0% $21 -41.9% -$9

Total 2.8% $342 $313 -8.4% $352 -11.2% -$38


$305 $305$296

$303

$334$320

$342

Section 1 claims

0

$50

$100

$150

$200

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$400

$450

Expected

Reported

2020201920182017

Q1 to Q2 average change 2017 to 2019:

2.8%

Q1 to Q2 average change in 2020:

-8.4%

$352

$313

Q1 Q2 Q1 Q2 Q1 Q2 Q1 Q2

1. NAIC health blanks with business from 2017 to 2020 Q2 YTD only. Excludes NAIC Life/Accident/Health, NAIC P&C, and CA DMHC Filers. Data as of September 2020.

INCURRED CLAIMS PMPM – MAJOR LINES OF BUSINESSQ1–Q2 2017 TO Q1–Q2 2020


TOTAL ADJUSTED CAPITAL BY CARRIER TYPE2015 TO 2019

MARKET CAPITALIZATION:STATUTORY CAPITAL/RBC TRENDSMarket capitalization measured by Total Adjusted Capital (TAC) increased due to small increases in the size of the market (measured by premium), and very little total change in Risk Based Capital ratios. Overall, Public Companies saw minor decreases to their RBC ratios in 2019, while Non-Public Blues saw increases in both TAC and RBC ratios.

2015 TO 2019 STATUTORY1 RISK BASED CAPITAL02

Capital Held

• Total capital held by health companies increased every year since 2015, from $125.6 billion to $180.2 billion.

• Every carrier type increased capital each year since 2015.

• The Non-Public Blues collectively held more capital than the publics in both 2018 and 2019.

RBC Ratios

• RBC ratios for health carriers declined from 2015 to 2016 overall, before rebounding in 2017 and 2018. 2019 saw additional overall increases, with increases for Non-Public Blues and Other Health Carriers, and a slight decrease for Public Companies.

• Non-Public Blues consistently had the highest RBC ratios, reflecting their limited availability to raise capital outside of business operations.

• Publicly traded and other health carriers had similar RBC ratios for all five years.

RBC RATIOS BY CARRIER TYPE2015 TO 2019

Carrier Type2019 Premium (in Billions) Major Medical

2019 Adjusted Capital (In Billions)

Average Lives (in Millions) Major Medical

2015 2016 2017 2018 2019

Public Companies 413.3 76.1 59.2 492% 485% 495% 489% 473%

Non-Public Blues 198.8 79.6 31.2 724% 721% 818% 883% 903%

Other Health Carriers 139.6 24.5 21.5 479% 452% 464% 465% 481%

All Health Carriers 751.7 180.2 111.9 565% 554% 590% 603% 600%

1. NAIC Health and Life Blanks Only, Excludes NAIC P&C and CA DMHC Filers, Companies with Less than $500 Million in Accident and Health Direct Premiums from the 2018 Accident and Health Policy Experience Exhibit, and Companies who Derive Less than 60% of Total AHPEE Premium from Non-Comprehensive Medical Products.

Public Companies


All Health Carriers

Non-Public Blues

Public Companies


All Health Carriers

Non-Public Blues

Blue under $2B (10 companies)

Blue over $6B (10 companies)

Section 2

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Cigna

Total

UnitedHealthcare

Kaiser

Humana

Health Care Service Corporation

GuideWell (Florida Blue)

Independence Health Group

Aetna

Centene

Anthem

Public Companies


Total

Non-Public Blues

Blue $2–6B (12 companies)

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125.6 133.0

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Section 2

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Kaiser

Humana




Aetna

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Anthem

Public Companies


Total

Non-Public Blues


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Section 2

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Aetna

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2015 TO 2019 STATUTORY1 RISK BASED CAPITAL02RBC Ratios of Public Companies

• Publicly traded companies’ RBC ratios were relatively flat over the 2015 to 2018 period, and saw a small decrease in 2019.

• This is likely driven by corporate capital targets and the desire to either deploy excess capital or return it to shareholders.

RBC Ratios of Other Health CarriersOther Health Carriers often are affiliated with health systems and prefer not to tie up capital in insurance companies. Overall capital levels have been fairly stable, similar to Publics.

Public Companies2019 Premium (in Billions) Major Medical

2019 Adjusted Capital (in Billions)

Avg. 2015–2019 Lives (in Millions) Major Medical

2015 2016 2017 2018 2019

Molina 14.0 1.7 2.7 321% 312% 305% 441% 372%

Cigna 20.1 10.0 3.6 542% 544% 559% 554% 547%

Centene 55.3 7.3 9.9 365% 363% 361% 393% 377%

Aetna 50.6 9.7 7.4 588% 569% 607% 557% 484%

Humana 58.7 8.1 6.3 427% 497% 543% 483% 434%

Anthem 67.6 12.9 10.2 502% 497% 509% 505% 485%

UnitedHealthcare 144.1 25.8 18.3 514% 474% 478% 476% 495%

Total Public Companies 410.4 75.6 58.3 492% 485% 495% 489% 473%

Non-Public Blues2019 Premium (in Billions) Major Medical



2015 2016 2017 2018 2019

Blue under $2B (10 companies) 15.1 6.8 2.8 879% 864% 911% 933% 910%

Blue $2–6B (12 companies) 47.8 21.6 8.0 815% 796% 915% 921% 901%

Blue over $6B (10 companies) 135.9 51.2 20.4 668% 673% 767% 862% 903%

Total Non-Public Blues 198.8 79.6 31.2 724% 721% 818% 883% 903%

Other Health Carriers2019 Premium (in Billions) Major Medical



2015 2016 2017 2018 2019

Kaiser Foundation Health Plan, Inc. 19.8 2.4 3.0 610% 590% 442% 555% 520%

CareSource Management Group Company 9.7 1.1 1.5 412% 328% 335% 280% 318%

University of Pittsburgh Medical Center 8.7 1.4 1.1 357% 436% 464% 368% 391%

Other over $500M Premium 101.4 19.7 15.9 478% 445% 477% 479% 498%

Total Other Health Carriers 139.6 24.5 21.5 534% 528% 545% 563% 550%

RBC Ratios of Non-Public Blues• RBC ratios for Non-Public Blue licensees

tend to have in inverse relationship with revenue; the lower the revenue, the higher the RBC ratio.

• This relationship was not as pronounced in 2019.


NON-PUBLIC BLUES RBC RATIOS BY ANNUAL PREMIUM2015 TO 2019


2015 TO 2019 STATUTORY1 RISK BASED CAPITAL02RBC Ratios of the Top Ten Companies by 2019 Premiums

• The top ten companies by 2019 revenue represent 65% of 2019 major medical premiums, 62% of 2019 lives, and 57% of 2019 adjusted capital of major medical carriers.

• Two of the Non-Public Blue companies in the top ten, GuideWell and Health Care Service Corporation (HCSC), have consistently had the highest RBC ratios of the top ten.

• The other Blue, Independence Health Group, consistently had among the lowest RBC ratios of the top ten.

• The only Other (than Public or Blue) company, Kaiser, had the most volatility in their RBC ratio besides HCSC.

• The six Publics all had little variability in their RBC ratios.

RBC RATIOS OF THE TOP TEN CARRIERS BASED ON 2019 PREMIUMS2015 TO 2019


Top Ten Carriers Carrier Type

2019 Premium (in Billions) Major Medical

2019 Adjusted Capital (In Billions)


2015 2016 2017 2018 2019

UnitedHealthcare Public 144.1 25.8 18.3 514% 474% 478% 476% 495%

Anthem Public 67.6 12.9 10.2 502% 497% 509% 505% 485%

Humana Public 58.7 8.1 6.3 427% 497% 543% 483% 434%

Centene Public 55.3 7.3 9.9 365% 363% 361% 393% 377%

Aetna Public 50.6 9.7 7.4 588% 569% 607% 557% 484%

Health Care Service Corporation Blue 35.7 19.0 5.7 784% 822% 1,001% 1,264% 1,253%

Cigna Public 20.1 10.0 3.6 542% 544% 559% 554% 547%

Kaiser Other 19.8 2.4 3.0 610% 590% 442% 555% 520%

GuideWell (Florida Blue) Blue 17.8 4.4 2.6 793% 884% 668% 679% 799%

Independence Health Group Blue 17.7 2.3 2.5 413% 366% 412% 463% 473%

Total Top Ten 487.4 102.0 69.4 534% 528% 545% 563% 550%



Section 2

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900

1000

2016Y2015Y

200%

400%

600%

800%

1000%

1200%

1400%

Cigna

Total

UnitedHealthcare

Kaiser

Humana




Aetna

Centene

Anthem

Public Companies


Total

Non-Public Blues


500%

600%

700%

800%

900%

1000%

1100%

RB

C R

ati

o

2015 2016 2017 2018 2019

0

20

40

60

80

100

120

140

160

180

200

Public Companies


All Health Carriers

Non-Public Blues

148.0

125.6 133.0

164.7

180.2

RB

C R

ati

o

2015 2016 2017 2018 2019

2015 2016 2017 2018 2019

2015 2016 2017 2018 2019

RB

C R

ati

o

To

tal A

dju

ste

d C

ap

ita

l in

($

Billio

ns)


1. Based on 10Q and 10K segment reporting, and revenue and expense allocation estimates between insured and self-insured business. Results are indicative, but may not tie directly to other internal or external financial reports.

2. Due to a change in 10-K and 10-Q presentation in the wake of changes in their business structure in Q4 2019, Aetna’s and Cigna’s Q1–Q3 2019 data is not comparable with prior quarters. The change in financial reporting presentation was caused by CVS buying Aetna in November 2018 and Cigna buying Express Scripts in December 2018, and as such, we removed the Q4 2018 data points for those companies.

HEALTH CARE ESTIMATED NET INCOME (AS % OF PREMIUM) – INSURED BUSINESSQ1 2017–Q2 2020

Net Income Trends – Insured Business1

• All companies in this study have reported record profit margins in second quarter of 2020 due to declining loss ratios.

• The variability in profit margins from Q1 2019 to Q4 2019 for Anthem and Cigna and in 2019 Q4 for Aetna are primarily driven by loss ratio variances. UnitedHealthcare’s profit margins have been fairly consistent through 2019.

Carrier Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 20182

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

All Q Average

UnitedHealthcare 4.5% 4.6% 4.9% 6.9% 5.1% 5.2% 5.6% 5.2% 5.7% 5.4% 5.9% 5.8% 5.2% 10.7% 5.8%

Anthem 4.5% 3.9% 3.4% 5.5% 5.9% 4.6% 4.2% 1.8% 6.4% 4.5% 4.5% 3.4% 5.2% 7.8% 4.7%

Aetna2 4.9% 7.5% 6.0% 2.5% 8.1% 7.4% 6.3% — 4.8% 4.5% 4.3% 1.7% 4.1% 12.5% 5.7%

Cigna2 7.4% 7.3% 7.1% 4.8% 9.7% 8.7% 8.9% — 9.7% 8.8% 8.0% 6.2% 10.4% 12.7% 8.4%

Unweighted Average 5.3% 5.8% 5.4% 4.9% 7.2% 6.5% 6.3% 3.5% 6.7% 5.8% 5.7% 4.3% 6.2% 10.9% 6.0%

Pg 10 Performance

Ne

t In

com

e (

as

% o

f P

rem

ium

)

12.7%

10.7%

7.8%

12.5%

10.9%

UnitedHealthcare Anthem Cigna Average (unweighted)Aetna

Op

era

tin

g E

xp

en

se R

ati

oL

oss

Ra

tio

0%

2%

4%

6%

8%

10%

12%

14%

Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017


Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017

77.9%

72.2%

70.5%

70.3%

70.2%


Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017

50%

60%

70%

80%

90%

100%

0%

5%

10%

15%

20%

13.0%

12.4%

11.8%

11.5%

8.7%

PUBLIC COMPANIESFINANCIAL PERFORMANCEPublic Companies continue to perform well. We reviewed the profitability for the insured blocks of business and noted that margins remained strong, as loss ratios improved in Q2 2020 due to COVID-19. However operating expenses have been increasing in more recent quarters.

PUBLIC COMPANIES FINANCIAL PERFORMANCE03


Medical Loss Ratio1

Reported loss ratios declined to around 70% for Cigna, Aetna, and UnitedHealthcare and to 78% for Anthem in Q2 2020 due to COVID-19.

Estimated2 Operating Expense Ratio1

• Operating expense ratios increased in Q2 2020 for all four companies driven by combination of reinstatement of the HIP Fee for 2020 and premium credits provided in response to the COVID-19 pandemic to members enrolled in certain Individual plans and fully insured employer customers.

• The increase for Anthem is also due to increased spend to support growth.

OPERATING EXPENSE RATIOQ1 2017–Q2 2020

MEDICAL LOSS RATIOQ1 2017–Q2 2020

1. Based on 10Q and 10K segment reporting, and revenue and expense allocation estimates between insured and self-insured business. Results are indicative, but may not tie directly to other internal or external financial reports.

2. Anthem Q2 and Q3 2019 estimated operating expense ratio impacted by the creation of the PBM IngenioRx in Q2 2019.

PUBLIC COMPANIES FINANCIAL PERFORMANCE03

Pg 10 Performance

Ne

t In

com

e (

as

% o

f P

rem

ium

)

12.7%

10.7%

7.8%

12.5%

10.9%


Op

era

tin

g E

xp

en

se R

ati

oL

oss

Ra

tio

0%

2%

4%

6%

8%

10%

12%

14%

Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017


Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017

77.9%

72.2%

70.5%

70.3%

70.2%


Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017

50%

60%

70%

80%

90%

100%

0%

5%

10%

15%

20%

13.0%

12.4%

11.8%

11.5%

8.7%

Pg 10 Performance

Ne

t In

com

e (

as

% o

f P

rem

ium

)

12.7%

10.7%

7.8%

12.5%

10.9%


Op

era

tin

g E

xp

en

se R

ati

oL

oss

Ra

tio

0%

2%

4%

6%

8%

10%

12%

14%

Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017


Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017

77.9%

72.2%

70.5%

70.3%

70.2%


Q22020

Q12020

Q42019

Q32019

Q22019

Q12019

Q42018

Q32018

Q22018

Q12018

Q42017

Q32017

Q22017

Q12017

50%

60%

70%

80%

90%

100%

0%

5%

10%

15%

20%

13.0%

12.4%

11.8%

11.5%

8.7%


1. Severe Acute Respiratory Syndrome Coronavirus 2 from Patient with Coronavirus Disease, United States, https://wwwnc.cdc.gov/eid/article/26/6/20-0516_article2. Anthem Q2 Earnings Release, Call Transcript3. Centene Q2 Earnings Release, Call Transcript4. Humana Q2 Earnings Release, Call Transcript5. Molina Q2 Earnings Release, Call Transcript6. Cigna Q2 Earnings Release, Call Transcript7. UnitedHealth Group Q2 Earnings Release, Call Transcript

COVID-19 IMPACTCARRIER INSIGHTSThe United States experienced its first confirmed case of COVID-19 on January 20, 2020.1 Since that date, the virus has spread rapidly and driven dramatic changes to the healthcare landscape. The 2nd quarter earnings calls provide some insight into how health carriers are viewing the impact of COVID-19 on healthcare costs, utilization patterns, membership, and how they are assisting their customers during this difficult period.

COVID-19 CORNER04

DIRECT COSTSThe costs associated with COVID-19 include those for testing and treatment associated with COVID-19 related diagnoses.

• Anthem: To date have paid $500 million associated with COVID-19 related diagnoses2

• Centene: Through the end of June, have paid approximately $550 million associated with COVID claims3

• Humana: Projected Annual COVID testing and treatment costs of $600 million4

• Molina: Just over 4,100 hospitalizations with an average inpatient episode cost of $9,000 plus the cost of outpatient and other professional services5

UTILIZATIONGenerally, COVID-19 began to impact utilization run rates in the second half of March 2020. Utilization further declined in April before seeing a slight rebound in May and approached normal levels in June based on carrier estimates.

• Anthem: Aggregate utilization was 40% below expectations in April, 20% lower in May, and recovered to 90% of baseline in June2

• Centene: Volume began to return in May and June was virtually a normal month – with the recent surge in the virus, there appears to be some decline in utilization in July3

• Cigna: Utilization was 30% to 35% lower in April, 20% to 25% lower in May, and closer to normal in June at approximately 0% to 5% lower6

• Humana: Decline in medical utilization of at least 30% during the last two weeks of March and through most of April. In late April and throughout May, utilization began to rebound. In June, it was approximately 10% below normal levels, excluding COVID utilization. In July, the non-COVID inpatient utilization remained flat to June, but COVID testing and treatment costs were a bit higher than June.4

• Molina: Significantly lower utilization in cost categories representing approximately two thirds of total spend with utilization levels increasing slowly as the quarter progressed5

• UnitedHealth Group: At the lowest point in April, inpatient care – inclusive of COVID-19 related care – was about three quarters of baseline whereas Outpatient and physician services fell to roughly 60% of normal levels. In June, inpatient care recovered to nearly 95%. Outpatient and physician services were tracking above 90%. These national trends have continued thus far in July, even as certain states are seeing short-term deferral of services where there are elevated levels of infection and hospitalization.7


COVID-19 CORNER04

MEMBERSHIPDuring the 2nd quarter, the COVID-19 pandemic drove the unemployment rate to a high of 14.7% in April. This rate decreased slightly throughout the rest of the quarter ending at 11.1%.8 The shift in enrollment from the Commercial to the Medicaid markets was lower than expected, however, those in the industry seem to believe there may be a larger shift once the increased unemployment benefits from the CARES Act expire.

• Anthem: Attrition in Commercial business has been less than expected to date, however, attrition is likely to accelerate when federal assistance expires2

• Centene: In April, raised 2020 revenue guidance by $6 billion, including $4 billion in COVID-related membership growth – this has been reduced by $0.5 billion as new membership is now expected to peak in November instead of August – the midpoint of projected year-end unemployment rate is 10.3%3

• Molina: Medicaid membership increased sequentially by 152,000 members in the quarter, a 5% increase, due to the suspension of redeterminations – believe that unemployment related enrollment has not yet materially accessed managed Medicaid. Through the first three weeks of July the Medicaid membership continued to grow by about 30,000 members5

CUSTOMER ASSISTANCEHealth insurers used a variety of methods to provide relief to customers including premium credits and the waiving of cost-sharing for COVID-related costs. Some carriers also chose to accelerate payments to their provider partners who have experienced cash flow issues.

• Anthem: Provided one month premium credit, ranging from 10% to 15% to its individual and employer group customers, in addition to, a 50% credit for those in their dental plans2

• BCBS of Massachusetts: On August 5th, BCBS of MA announced $101 million in premium relief and anticipated rebates to customers and members. This brings their total commitment to $217 million (including $116 million that it has invested to support members, customers, clinical partners, and the community). Credits will be applied in September for fully insured employer groups and members including under-65 direct pay and Medex members – it will total 15% of their May premium. Before end of 2020, MA members will have a one month “premium holiday”9

• Cigna: Waiving all cost sharing for COVID-19 testing and treatment and for Medicare Advantage in individual and family plans, additionally waiving cost sharing for in-office and telehealth visits for primary care, specialty care and behavioral health6

• Humana: Constituent support will amount to around $2 billion by year-end4

• Molina: Refunds amounted to $75 million pre-tax and related to the states of Ohio, Illinois, California, South Carolina, Mississippi, and Washington5

• UnitedHealth Group: Waiving all consumer COVID-19 diagnostic and treatment costs, accelerating $2 billion in needed funding to care providers, providing over $1.5 billion in direct consumer and customer assistance, including premium forgiveness and suspension of member cost sharing, to help people manage their health conditions7

1. Severe Acute Respiratory Syndrome Coronavirus 2 from Patient with Coronavirus Disease, United States, https://wwwnc.cdc.gov/eid/article/26/6/20-0516_article2. Anthem Q2 Earnings Release, Call Transcript3. Centene Q2 Earnings Release, Call Transcript4. Humana Q2 Earnings Release, Call Transcript5. Molina Q2 Earnings Release, Call Transcript6. Cigna Q2 Earnings Release, Call Transcript7. UnitedHealth Group Q2 Earnings Release, Call Transcript8. Labor Force Statistics from the Current Population Survey, https://data.bls.gov/timeseries/LNS140000009. BCBS of Massachusetts Press Release, Aug. 5th, 2020, http://newsroom.bluecrossma.com/2020-08-05-Blue-Cross-Blue-Shield-of-Massachusetts-to-Issue-More-Than-100-Million-in-

Premium-Relief-to-Insured-Customers-and-Members


Actuarial Consulting

CARRIER TREND REPORTHealthcare Report, January 2020

Carrier Trend Report, January 2020If you would like a copy of our current Carrier Trend Report, please email us at [email protected].


2019 OPEN ENROLLMENT AND PREPARING FOR 2020 AND BEYOND

From October 15, 2018 through December 7, 2018, nearly 60 million

seniors and people with disabilities will have the opportunity to assess

their current Medicare coverage. There is no penalty for an eligible

member to change between Medicare Advantage plans (MA) or between

MA and Medicare fee-for-service (FFS) during this period.1 Currently, there

are roughly 20 million Medicare enrollees that purchase their medical

coverage from private health plans in MA.2

1 Enrollees with Medicare Supplemental coverage would be subject to underwriting if they attempt to change plans after the first 6 months from turning 65

2 https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2018.pdf (Table IV.C1. – Private Health Plan Enrollment)

Volume 1 | FALL 2018

MEDICARE ADVANTAGE INSIGHTS

Medicare Advantage Insights, Volume 1

We are very excited to present the second edition of our Health Insurer Financial Insights newsletter reflecting our refreshed brand. This newsletter focuses on market profitability and recent MLR rebate activity for public and non-public health insurers. Our aim is to keep you abreast of key market trends and dynamics that impact health insurer financial results and profitability. We hope you enjoy the newsletter and find it informative. Please look for our next edition this spring.

Q3 YTD 2019 Statutory Financials – Individual, Group, Medicare, and Medicaid Markets: We summarize the profitability trends of carriers with third quarter 2019 year-to-date (Q3 2019 YTD) information. We also summarize the enrollment and loss ratio trends in the individual, group, Medicare, and Medicaid markets. Overall, for all lines combined, pre-tax margins have remained stable in 2019 for the major market segments with the exception of the Non-Public Blues segment which reported slightly increasing loss ratios and a decline in profitability from its peak in 2018.

Individual Market: MLR Rebate TrendsContinuous increases in premium rates for ACA compliant plans in the individual market helped improve insurers loss ratios and margins from 2015 to 2018. However, this trend also increased MLR rebates for 2018 coverage that insurers had to pay back in 2019 rebates. These rebates totaled about 0.8% of earned premiums, or $770 million in rebates to insureds. We look closer at the ACA loss ratios and discuss how MLR rebates will likely continue to impact insurer margins in the next few years.

Public Companies Financial PerformancePublic health insurers continue to perform well. We reviewed profitability of their insured blocks of business and noted that margins remained strong, as loss ratios and operating expenses generally improved or remained in check for the 15 quarters from Q1 2016 to Q3 2019.

HEALTH INSURER FINANCIAL INSIGHTS


VOLUME 2 | FALL 2019/WINTER 2020

IN THIS ISSUEQ3 YTD 2019 Statutory Results by Market

Individual Market: MLR Rebate Trends

Public Companies Financial Performance

M&A Corner: Centene/WellCare

02

01

03

04

Health Insurer Financial Insights, Volume 2

REDUCING PREMIUMS AND EXPANDING ENROLLMENT IN THE INDIVIDUAL HEALTH INSURANCE MARKET February 28, 2019

Kurt Giesa, FSA, MAAA Peter Kaczmarek, FSA, MAAA

Reducing Premiums And Expanding Enrollment In The Individual Health Insurance Market In 2021

HOW CAN WE SUPPORT YOU? WE UNDERSTAND THAT ACTUARIAL ADVICE IS VALUABLE ONLY IF THE MESSAGE IS TIMELY, CLEAR AND CLIENT FOCUSED. WE LOOK FORWARD TO EXPLORING HOW OUR ACTUARIES—SPECIALIZED EXPERTS WITH DEEP INDUSTRY KNOWLEDGE—CAN HELP YOU SUCCEED.

YOU MAY ALSO BE INTERESTED IN:

FOR MORE INFORMATION ABOUT THIS REPORT, PLEASE CONTACT:

Marc Lambright, FSA, [email protected]

Peter Kaczmarek, FSA, MAAASenior [email protected]

Zachary Smith, FSA, MAAA, CERASenior [email protected]

www.oliverwyman.com

https://www.oliverwyman.com/our-expertise/insights/2020/mar/carrier-trend-report.html

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https://www.oliverwyman.com/our-expertise/insights/2020/feb/health-insurer-financial-insights-volume-2.html

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Copyright © 2020 Oliver WymanAll rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.

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ABOUT OLIVER WYMANOliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

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