When I wrote last month about profits at Indianapolis-area hospitals, more than one reader said I should instead focus on health insurer profits.
So, now, it’s the health insurers’ turn.
After all, I try to operate The Dose under equal opportunity policies—everyone will face critical analysis at some point.
On top of that, I got a huge helping hand recently from Citi Research analyst Carl McDonald, who, for the second year in a row,compiled a mind-boggling report on the entire commercial risk health insurance market in every state. For those of you in the health insurance industry, this is must reading.
McDonald’s report, issued earlier this month, relies on 2012 data from the National Association of Insurance Commissioners. (If you want to read McDonald’s report using 2011 data, go here.)
I have requested 2013 financial information on health insurers from the Indiana Department of Insurance, and when I get it, I can bring this analysis up to date.
But since I focused on 2012 hospital profits and 2012 physician compensation, it makes sense to look at what the health insurers were making that same year.
So below are the profits of the 20 health insurers with at least 2,000 fully insured lives in Indiana, ranked by their underwriting profit margins. Underwriting profits are the amount of money left over after medical bills and overhead are paid, but before the impact of any investment gains or losses.
The numbers below do not give us a look at the entire health insurance market—they do not include the money spent by self-funded employers, who hire
large insurers like Indianapolis-based WellPoint or third-party administrators merely to administrate their health plans, not to take on the financial risk of them.
But by showing the full-risk health insurance business, the data below show the part of the business that—while smaller in number of covered lives—accounts for the “vast majority” of revenue and profits made by most health insurers, McDonald stated.
This is also the part of the insurance market—particularly the individual and small-employer parts of it—facing the most change from Obamacare.
1. SIHO Insurance Services: 20.2 percent ($10.0 million)
2. UnitedHealthcare: 7.3 percent ($34.8 million)
3. WellPoint: 5.8 percent ($129.0 million)
4. Humana: 3.6 percent ($3.7 million)
5. Nippon Life: 1.7 percent ($328,000)
6. IU Health Plans: 1.1 percent ($192,000)
7. Physicians Health Plan: 0.5 percent ($754,000)
8. Trustmark: -0.4 percent (-$59,000)
9. Everence: -0.5 percent (-$44,000)
10. Assurant: -1.9 percent (-$915,000)
11. Advantage: -2.0 percent (-$5.4 million)
12. HealthMarkets: -3.2 percent (-$305,000)
13. Aetna: -4.5 percent (-$1.0 million)
14. NHP/Welborn: -5.1 percent (-$5 million)
15. Federated: -6.8 percent (-$3 million)
16. Pekin: -7.7 percent (-$1.8 million)
17. Medical Mutual: -8.5 percent (-$5.4 million)
18. Med Benefits: -21.2 percent (-$2.4 million)
19. Centene: -24.3 percent (-$1.7 million)
20. Cigna: -29.8 percent (-$5.6 million)
What jumps out to me immediately is that Indianapolis-based WellPoint is turning a $129 million profit in Indiana–which is a sign of its dominating 59.8-percent market share. That's nice work, if you can get it.
Also notice that only seven out of the top 20 are even making profits. However, this might be a bit misleading. McDonald notes that the underwriting margins are lower for some companies because they record the dividend they upstream to their parent company as an overhead expense, which thereby reduces their reported underwriting profit.
The underwriting profits appear accurate for WellPoint and UnitedHealthcare, whose underwriting gains assumes administrative overhead expenses equal to 13 percent of premiums. That figure is fairly consistent with the corporate-wide overhead numbers reported by those companies.
But other insurers clearly have handled things differently. For example, IU Health Plans appears to have included all its overhead in its MLR, because its underwriting profit of 1.1 percent is the exact inverse of the percentage of premiums it says it spent on medical bills, which is 98.9 percent.
So here is the list again, ranked purely by the percentage of premiums they spend on medical bills (with lower numbers being ranked higher, because that leaves the insurers more gross profit). This is known in the industry as medical-loss ratio, or MLR. Anybody with an MLR of 85 percent or less is almost certainly making money–or at least should be. Some insurers with even higher MLRs might be making modest profits, too, such as IU Health Plans.
It's worth noting that these MLRs are higher than they would have been four years ago, because Obamacare now requires the insurers to spend at least 80 percent of their premiums on medical bills, or else rebate the difference to consumers. For large employers, the threshold is 85 percent. So as you view the numbers below, keep in mind that the insurers with the lowest MLRs may have higher overhead expenses because they're spending more money on rebates.
1. Everence: 73.7 percent
2. Humana: 74.5 percent
3. Trustmark: 75.7 percent
4. UnitedHealthcare: 76.1 percent
5. Nippon: 76.3 percent
6. SIHO Insurance Services: 78.3 percent
7. Assurant: 78.9 percent
8. WellPoint: 81.2 percent
9. HealthMarkets: 83.1 percent
10. Med Benefits: 83.3 percent
11. Aetna: 84.3 percent
12. Medical Mutual of Ohio: 85.2 percent
13. Physicians Health Plan: 85.3 percent
14. Federated: 87.9 percent
15. NHP/Welborn: 88.7 percent
16. Advantage: 94.6 percent
17. Pekin: 96.5 percent
18. Centene: 97.7 percent
19. IU Health Plans: 98.9 percent
20. Cigna: 123.2 percent
So there you have it. It looks like more than half the health insurers in Indiana were profitable, even though only seven were on paper. As for whether their profits are too high or too low, or better or worse than hospitals' profits, I'll let you all argue about that.